UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| (Mark One) | |
þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 20182021 |
| OR |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to . |
Commission file number: 001-33492
CVR Energy, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | | 61-1512186 |
Delaware
(State or Other Jurisdiction of Incorporation or Organization) |
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61-1512186
(I.R.S. Employer Identification No.) |
2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479
(Address of principal executive offices) (Zip Code)
281-207-3200
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Ticker Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 par value per share | The CVI | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
IndicateIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐ No þ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No þ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ☑ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
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Large accelerated filero | ☐ | Accelerated filerþ | ☑ | Non-accelerated filer | ☐ |
Non-accelerated filer o
| | Smaller reporting companyo |
| ☐ | Emerging growth companyo | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑
At June 29, 2018,30, 2021, the aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $578$527 million based upon the closing price of its common stock on the New York Stock Exchange Composite tape. As of February 19, 2019,18, 2022, there were 100,530,599 shares of the registrant’s common stock outstanding.outstanding.
Documents Incorporated By Reference
Portions of the registrant’s Proxy Statement to be filed pursuant to Regulation 14A pertaining to the 20192022 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. The Company intends to file such Proxy Statement no later than 120 days after the end of the fiscal year covered by this Form 10-K.
TABLE OF CONTENTS
CVR Energy, Inc.
Annual Report on Form 10-K
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| PART I | | | PART III | |
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| PART II | | | PART IV | |
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December 31, 20182021 | 1
GLOSSARY OF SELECTED TERMS
The following are definitions of certain terms used in this Annual Report on Form 10-K for the year ended December 31, 20182021 (this “Report”).
2-1-1 crack spread — The approximate gross margin resulting from processing two barrels of crude oil to produce one barrel of gasoline and one barrel of distillate. The 2-1-1 crack spread is expressed in dollars per barrel and is a proxy for the per barrel margin that a sweet crude oil refinery would earn assuming it produced and sold the benchmark production of gasoline and distillate.
Ammonia — Ammonia is a direct application fertilizer and is primarily used as a building block for other nitrogen products for industrial applications and finished fertilizer products.
Biodiesel — A domestically produced, renewable fuel that can be manufactured from vegetable oils, animal fats, or recycled restaurant grease for use in diesel vehicles or any equipment that operates on diesel fuel and has physical properties similar to those of petroleum diesel.
Blendstocks — Various compounds that are combined with gasoline or diesel from the crude oil refining process to make finished gasoline and diesel fuel; these may include natural gas liquids, ethanol, or reformate, among others.
bpd Bpd — Abbreviation for barrels per day.
bpcd — Abbreviation for barrels per calendar day, which refers to the total number of barrels processed in a refinery within a year, divided by the total number of days in the year (365 or 366 days), thus reflecting all operational and logistical limitations.
Bulk sales — Volume sales through third-party pipelines, in contrast to tanker truck quantity rack sales.
Capacity — Capacity is defined as the throughput a process unit is capable of sustaining, either on a calendar or stream day basis. The throughput may be expressed in terms of maximum sustainable, nameplate or economic capacity. The maximum sustainable or nameplate capacities may not be the most economical. The economic capacity is the throughput that generally provides the greatest economic benefit based on considerations such as crude oil and other feedstock costs, product values, regulatory compliance costs and downstream unit constraints.
Catalyst — A substance that alters, accelerates, or instigates chemical changes, but is neither produced, consumed nor altered in the process.
Corn belt —The primary corn producing region of the United States, which includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and Wisconsin.
Crack spread — A simplified calculation that measures the difference between the price for light products and crude oil.
Distillates — Primarily diesel fuel, kerosene and jet fuel.
Ethanol — A clear, colorless, flammable oxygenated hydrocarbon. Ethanol is typically produced chemically from ethylene, or biologically from fermentation of various sugars from carbohydrates found in agricultural crops and cellulosic residues from crops or wood. It is used in the United States as a gasoline octane enhancer and oxygenate.
Farm belt — Refers to the states of Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas and Wisconsin.
FCCU — Refers to the fluid catalytic cracking unit.
Feedstocks — Petroleum products, such as crude oil or fluid catalytic cracking unit or FCCU gasoline, that are processed and blended into refined products, such as gasoline, diesel fuel, and jet fuel during the refining process.
GHG — Greenhouse gas.
Group 3 — A geographic subset of the PADD II region comprising refineries in the midcontinent portion of the United States, specifically Oklahoma, Kansas, Missouri, Nebraska, Iowa, Minnesota, North Dakota, and South Dakota.
Heavy crude oil — A relatively inexpensive crude oil characterized by high relative density and viscosity. Heavy crude oils require greater levels of processing to produce high value products such as gasoline and diesel fuel.
Light crude oil — A relatively expensive crude oil characterized by low relative density and viscosity. Light crude oils require lower levels of processing to produce high value products such as gasoline and diesel fuel.
Liquid volume yield — A calculation of the total liquid volumes produced divided by total throughput.
Mbpd — Thousand barrels per day.
MMBtu — One million British thermal units, or Btu: a measure of energy. One Btu of heat is required to raise the temperature of one pound of water one degree Fahrenheit.
MMcf — One million standard cubic feet, a customary gas measurement.
Natural gas liquids — Natural gas liquids, often referred to as NGLs, are blendstocks used in the manufacture of refined fuels, as well as products of the refining process. Common NGLs used include propane, isobutane, normal butane and natural gasoline.
Petroleum coke (pet coke) — A coal-like substance that is produced during the refining process.
Product pricing at gate — Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons. Product pricing at gate is also referred to as netback.
Rack sales — Sales which are made at terminals into third-party tanker trucks or railcars.
RBOB — Reformulated blendstocks for oxygenate blending.
Renewable diesel — An advanced biofuel that is made from the same renewable resources as biodiesel but using a process that involves heat, pressure and hydrogen to create a cleaner fuel that’s chemically identical to petroleum diesel.
RDU — Renewable diesel unit.
Refined products — Petroleum products, such as gasoline, diesel fuel, and jet fuel, that are produced by a refinery.
RFS —Renewable Fuel Standard of the EPA.
RINs— Renewable fuel credits, known as renewable identification numbers.
SEC — Securities and Exchange Commission.
Sour crude oil — A crude oil that is relatively high in sulfur content, requiring additional processing to remove the sulfur. Sour crude oil is typically less expensive than sweet crude oil.
Southern Plains — Primarily includes Oklahoma, Texas and New Mexico.
Spot market — A market in which commodities are bought and sold for cash and delivered immediately.
Sweet crude oil — A crude oil that is relatively low in sulfur content, requiring less processing to remove the sulfur. Sweet crude oil is typically more expensive than sour crude oil.
Throughput — The quantity of crude oil and other feedstocks processed at a refinery measured in barrels per day.
Turnaround — A periodically requiredperformed standard procedure to inspect, refurbish, repair, and maintain the refinery or nitrogen fertilizer plant assets. This process involves the shutdown and inspection of major processing units and occurs every four to five years for the refineries and every two to three years for the nitrogen fertilizer plant.facilities. A turnaround will typically extend the operating life of a facility and return performance to desired operating levels.
UAN — An aqueous solution of urea and ammonium nitrate used as a fertilizer.
ULSD — Ultra low sulfur diesel.
Utilization — Measurement of the annual production of UAN and Ammonia expressed as a percentage of each facilities nameplate production capacity.
WCS —Western Canadian Select crude oil, a medium to heavy, sour crude oil, characterized by an American Petroleum Institute gravity (“API gravity”) of between 20 and 22 degrees and a sulfur content of approximately 3.3 weight percent.
WTI — West Texas Intermediate crude oil, a light, sweet crude oil, characterized by an API gravity between 39 and 41 degrees and a sulfur content of approximately 0.4 weight percent that is used as a benchmark for other crude oils.
WTS WTL — West Texas SourLight crude oil, a relatively light, soursweet crude oil, characterized by an API gravity of between 3044 and 3250 degrees and a sulfur content of approximately 2.00.4 weight percent.percent that is used as a benchmark for other crude oils with a slightly heavier grade than WTI.
Yield — The percentage of refined products that is produced from crude oil and other feedstocks.
December 31, 20182021 | 43
Important Information Regarding Forward Looking Statements
This Annual Report on Form 10-K contains forward-lookingforward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 1. Business, Item 1A. Risk Factors, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-lookingforward looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, stock or unit repurchases, impacts of legal proceedings, projected costs, prospects, plans, and objectives of management are forward-lookingforward looking statements. When used in this Annual Report on Form 10-K theThe words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar terms and phrases are intended to identify forward-lookingforward looking statements.
Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties, and other factors could cause actual results and trends to differ materially from those projected or forward-looking.
Forward-lookingforward looking. Forward looking statements, as well as certain risks, contingencies or uncertainties that may impact our forward looking statements, include statements about, but are not limited to the following:
•volatile margins in the refining industry and exposure to the risks associated with volatile crude oil, refined product and feedstock prices;
•the availability of adequate cash and other sources of liquidity for the capital needs of our businesses;
•the severity, magnitude, duration, and impact of the novel coronavirus 2019 and any variant thereof (collectively, “COVID-19”) pandemic and of businesses’ and governments’ responses to such pandemic on our operations, personnel, commercial activity, and supply and demand across our and our customers’ and suppliers’ business;
•changes in market conditions and market volatility arising from the COVID-19 pandemic, including crude oil and other commodity prices, demand for those commodities, storage and transportation capacities, and the impact of such changes on our operating results and financial position;
•expectations regarding our business and the economic recovery relating to the COVID-19 pandemic, including beliefs regarding future customer activity and the timing of the recovery;
•the ability to forecast our future financial condition, or results of operations, and future revenues and expenses of our businesses;expenses;
•the effects of transactions involving forward andor derivative instruments;
disruption of the petroleum business' ability to obtain an adequate supply of crude oil;
•changes in laws, regulations and policies with respect to the export of crude oil, refined products, other hydrocarbons or other hydrocarbons;
interruptionrenewable feedstocks or products including, without limitation, the actions of the Biden Administration that impact oil and gas operations in the U.S.;
•interruption in pipelines supplying feedstock and in the distribution offeedstocks or distributing the petroleum business’ products;
•competition in the petroleum and nitrogen fertilizer businesses;businesses, including potential impacts of domestic and global supply and demand and/or domestic or international duties, tariffs, or similar costs;
•capital expenditures and potential liabilities arising from environmental laws and regulations;expenditures;
•changes in oursour or CVR Refining's or CVR Partners'our segments’ credit profile;profiles;
•the cyclical nature of the nitrogen fertilizer business;
theand seasonal nature of the petroleum business;and nitrogen fertilizer businesses;
•the supply, availability and price levels of essential raw materials of and feedstocks;
•our businesses;
production levels, including the risk of a material decline in those levels;
•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, or equipment, or those of our suppliers or customers;
•existing and future laws, regulations or rulings, including but not limited to those relating to the environment, climate change, renewables, safety, security and/or the transportation of production at our refineries and nitrogen fertilizer plants;of hazardous chemicals like ammonia, including potential liabilities or capital requirements arising from such laws, regulations or rulings;
•potential operating hazards from accidents, fire, severe weather, tornadoes, floods, or other natural disasters;
•the risk associated with governmental policies affecting the agricultural industry;
the volatile natureimpact of ammonia, potential liability for accidents involving ammonia that cause interruption toweather on commodity supply and/or pricing and on the nitrogen fertilizer business severe damageincluding our ability to property and/produce, market or injury to the environment and human health and potential increased costs relating to the transport of ammonia;sell fertilizer products profitability or at all;
•rulings, judgments or settlements in litigation, tax or other legal or regulatory matters;
•the dependence of the nitrogen fertilizer business on a few third-party suppliers,customers and distributors including providers of transportation servicesto transport goods and equipment;
•the reliance on, or the ability to procure economically or at all, pet coke that we purchaseour nitrogen fertilizer business purchases from Coffeyville Resources Refining & Marketing, LLC (“CRRM”), a subsidiary of CVR Refining, LP, and third-party suppliers or the natural gas, electricity, oxygen, nitrogen, sulfur processing and compressed dry air and other products purchased from third party suppliers forparties by the nitrogen fertilizer business;and petroleum businesses;
new regulations concerning the transportation
•risks associated with third party operation of or control over important facilities necessary for operation of our refineries and nitrogen fertilizer facilities;
•risks of terrorism, cybersecurity attacks, and the security of chemical manufacturing facilities and other matters beyond our control;
the risk•our lack of security breaches;diversification of assets or operating and supply areas;
•the petroleum business’ and the nitrogen fertilizer business’ dependence on significant customers and the creditworthiness and performance by counterparties;
•the potential loss of the nitrogen fertilizer business’ transportation cost advantage over its competitors;
•the potential inability to successfully implement our business strategies at all or on time and within our anticipated budgets, including the completion of significant capital programs;programs or projects, turnarounds or renewable or carbon reduction initiatives at our refineries and fertilizer facilities, including pretreater, carbon sequestration, segregation of our renewables business and other projects;
•our ability to continue to license the technology used in the petroleum business and nitrogen fertilizer businessfor our operations;
•our petroleum business’ purchase of, or ability to purchase, RINsrenewable identification numbers (“RINs”) on a timely and cost effective basis;basis or at all;
•the impact of refined product demand, declining inventories, and Winter Storm Uri on refined product prices and crack spreads;
•Organization of Petroleum Exporting Countries’ (“OPEC”) production levels and pricing;
•the impact of RINs pricing, our petroleum business' continuedblending and purchasing activities and governmental actions, including by the U.S. Environmental Protection Agency (the “EPA”) on our RIN obligation, open RINs positions, small refinery exemptions, and our estimated consolidated cost to comply with our Renewable Fuel Standard (“RFS”) obligations;
•our businesses’ ability to secureobtain, retain or renew environmental and other governmental permits, licenses or authorizations necessary for the operation of its business;
•existing and proposed laws, regulations or rulings, and regulations, including but not limited to those relating to climate change, alternative energy or fuel sources, and existing and future regulations related to the end-use andof our products or the application of fertilizers;
•refinery and nitrogen fertilizer facilities’ operating hazards and interruptions, including unscheduled maintenance or downtime and the availability of adequate insurance coverage;
•risks related to services provided by or competition among our subsidiaries, including conflicts of interests and control of CVR Partners, LP’s general partner;
•instability and volatility in the capital and credit markets;
•restrictions in our debt agreements;
•asset impairments and impacts thereof;
•the variable nature of CVR Partners, LP’s distributions, including the ability of its general partner to modify or revoke its distribution policy, or to cease making cash distributions on its common units;
•changes in tax and other laws, regulations and policies, including, without limitation, actions of the Biden Administration that impact conventional fuel operations or favor renewable energy projects in the U.S.;
December 31, 2018 | 5
Table of Contents•changes in CVR Partners’ treatment as a partnership for U.S. federal income or state tax purposes; and
•our ability to recover under our insurance policies for damages or losses in full or at all.
All forward-lookingforward looking statements contained in this Report only speak as of the date of this Report. We undertake no obligation to publicly update or revise any forward-lookingforward looking statements to reflect events or circumstances that occur after the date of this Report, or to reflect the occurrence of unanticipated events, except to the extent required by law.
Information About Us
Investors should note that we make available, free of charge on our website at cvrenergy.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
December 31, 20182021 | 65
PART I
Part 1I should be read in conjunction with Management’s Discussion and Analysis in Item 7 and our consolidated financial statements and related notes thereto in Item 8.
Item 1. Business
Overview
CVR Energy, Inc. is a diversified holding company formed in September 2006. The Company2006 which is primarily engaged in the petroleum refining and marketing businessnitrogen fertilizer manufacturing industries through its interestholdings in CVR Refining, LP, which was a publicly traded limited partnership prior to January 29, 2019 (the “Petroleum Segment” or “CVR Refining”), and the nitrogen fertilizer manufacturing business through its interest in CVR Partners.Partners, LP, a publicly traded limited partnership (the “Nitrogen Fertilizer Segment” or “CVR Partners”). CVR Refining is an independent petroleum refiner and marketer of high value transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of UAN and ammonia. As used in this Annual Report on Form 10-K, the terms “CVR Energy,”Energy”, the “Company,” “we,”“Company”, “we”, “us” or “our” may refer to CVR Energy, Inc., one or more of its consolidated subsidiaries or all of them taken as a whole. The words “we,” “us” or “our” generally include CVR Refining, LP (“CVR Refining” or “CVRR”) or CVR Partners, LP (“CVR Partners” or the “Nitrogen Fertilizer Partnership”), the Company’s publicly traded limited partnership, and their respective subsidiaries, as consolidated subsidiaries of the Company, withsubject to certain exceptions where there are transactions or obligations between and among CVR Refining, CVR Partners, and CVR Energy, including their respective subsidiaries. Refer to “Petroleum” and “Nitrogen Fertilizer” below for further details on our two business segments.
As of December 31, 2018, we owned the general partner and approximately 81% and 34% respectively, of the outstanding common units representing limited partner interests in each of CVR Refining and CVR Partners. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “CVI,” and CVR Partners’ common units are listed on the NYSE under the symbol “UAN.” As of December 31, 2018,2021, Icahn Enterprises L.P. and its affiliates (“IEP”) owned approximately 71% of our outstanding common stock.
On January 17, 2019,As of December 31, 2021, we owned the general partner and approximately 36% of the outstanding common units representing limited partner interests in CVR Partners, with the public owning the remaining outstanding common units of CVR Partners.
As of December 31, 2021, we owned the general partner and all outstanding common units of CVR Refining, assignedincluding the common units of CVR Refining that we or our subsidiaries purchased on January 29, 2019 from unaffiliated common unitholders following the assignment by CVR Refining’s general partner to the Companyus of its right to purchase all of the issued and outstanding CVR Refiningsuch common units not already owned by CVR Refining’s general partner or its affiliates. On January 29, 2019, the Company purchased all remaining CVR Refining common units not already owned by the Company or its affiliates (the “Public Unit Purchase”). In conjunction with and from IEP pursuant to an agreement containing substantially similar terms as the Public Unit Purchase the Company purchased all CVR Refining common units owned by IEP and its subsidiary, American Entertainment Properties Corporation (“AEP”) (the “Affiliate Unit Purchase,”Purchase” and together with the Public Unit Purchase, the “CVRR Unit Purchase”). As a result of the CVRR Unit Purchase, the Refining Partnership’sCVR Refining’s common units were delisted effective January 29, 2019, and its reporting obligations under Sections 13(a) and 15(d) of the Exchange Act were suspended as of February 8, 2019. Refer to Part II, Item 8, Note 1 (“Organization and Nature of Business”) of this Report for further discussion of the CVRR Unit Purchase.
We operate under two business segments: petroleum (the petroleum and related businesses operated by CVR Refining) and nitrogen fertilizer (the nitrogen fertilizer businesses operated by CVR Partners). Throughout the remainder of this document, our business segments are referred to as “Petroleum Segment” and “Nitrogen Fertilizer Segment,” respectively. Refer to Item 1, “Petroleum” and Item 1, “Nitrogen Fertilizer” for further details on our business segments.
Our History
The following graphic depicts the Company’s history and key events that have occurred since the Company’s formation.
Petroleum
Our Petroleum Segment is comprisedcomposed of the assets and operations of CVR Refining, including two refineries located in Coffeyville, Kansas and Wynnewood, Oklahoma and supporting logistics assets in the region.
Facilities
Coffeyville Refinery - We own a complex full coking, medium-sour crude oil refinery in southeast Kansas, approximately 100 miles from Cushing, Oklahoma (“Cushing”) with a name plate crude oil capacity of 132,000 bpd (the “Coffeyville Refinery”). The major operations of the Coffeyville Refinery include fractionation, catalytic cracking, hydrotreating, reforming, coking, isomerization, alkylation, sulfur recovery, and propane and butane recovery operating units. The Coffeyville Refinery benefits from significant refining unit redundancies, which include two crude oil distillation and vacuum towers, threetwo sulfur recovery units, and fourfive hydrotreating units. These redundancies allow the Coffeyville Refinery to continue to receive and process crude oil even if one tower requires maintenance without having to shut down the entire refinery. In addition, the Coffeyville Refinery has a redundant supply of hydrogen pursuant to its feedstock and shared services agreement withResources Refining & Marketing, LLC (“CRRM”), a subsidiary of CVR Partners.Refining, has a hydrogen sale agreement with Coffeyville Resources Nitrogen Fertilizer, LLC (“CRNF”), a subsidiary of CVR Partners, where a fixed monthly volume of hydrogen is sold as part of the Coffeyville Master Service Agreement (the “Coffeyville MSA”).
In May 2021, CVR Energy’s board of directors (the “Board”) approved the completion of the design for a potential conversion of an existing hydrotreater at our Coffeyville Refinery to renewable diesel service.
Wynnewood Refinery - We own a complex crude oil refinery in Wynnewood, Oklahoma approximately 65 miles south of Oklahoma City, Oklahoma and approximately 130 miles from Cushing with a name plate crude oil capacity of 74,500 bpd bpd capable of processing 20,000 bpd of light sour crude oil (the “Wynnewood Refinery” and together with the Coffeyville Refinery, the “Refineries”). The major operations of the Wynnewood Refinery include fractionation, hydrocracking, hydrotreating, hydrocracking, reforming, solvent deasphalting, alkylation, sulfur recovery, and propane and butane recovery operating units. Similar to the Coffeyville Refinery, the Wynnewood Refinery benefits from unit redundancies, including two crude oil distillation and vacuum towers and four hydrotreating units.
In December 2020, the Board approved a renewable diesel project at our Wynnewood Refinery, which would convert the Wynnewood Refinery’s hydrocracker to an RDU capable of producing 100 million gallons of renewable diesel per year and approximately 170 to 180 million RINs annually. Currently, total estimated cost for the project is $170 million. Mechanical completion and startup of the RDU is expected to occur in the second quarter of 2022. As a result of the conversion of the hydrocracker to an RDU, the crude oil capacity of the Wynnewood Refinery would be reduced by approximately 4,500 bpd to 70,000 bpd. However, we may continue to choose to operate the Wynnewood Refinery in conventional hydrocracking mode instead of renewable diesel mode depending on which is most favorable economically.
In May 2021, CVR Energy’s board of directors (the “Board”) approved a $10 million capital expenditure for the completion of the design and ordering of certain long-lead equipment relating to a potential project to add pretreating capabilities for the RDU at our Wynnewood Refinery. In November 2021, the Board approved a project to install a renewable feedstock pretreatment unit at the Wynnewood Refinery, which is expected to be completed in the fourth quarter of 2022 at an estimated cost of $60 million. The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and currently generate additional low carbon fuel standard credits.
Throughput by Refinery(1)
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| Year Ended December 31, 2021 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
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| Total crude throughput | 121,514 | | | 73,386 | | | 194,900 | |
| All other feedstock and blendstock | 10,788 | | | 3,396 | | | 14,184 | |
| Total throughput | 132,302 | | | 76,782 | | | 209,084 | |
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| | Year Ended December 31, 2018 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
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| Total crude throughput | 124,489 |
| | 74,669 |
| | 199,158 |
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| All other feedstock and blendstock | 8,369 |
| | 5,068 |
| | 13,437 |
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| Total throughput | 132,858 |
| | 79,737 |
| | 212,595 |
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| | Year Ended December 31, 2017 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| | | | | | |
| Total crude throughput | 131,569 |
| | 73,180 |
| | 204,749 |
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| All other feedstock and blendstock | 9,921 |
| | 3,511 |
| | 13,432 |
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| Total throughput | 141,490 |
| | 76,691 |
| | 218,181 |
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Production by Refinery (1)
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| | Year Ended December 31, 2018 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
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| Gasoline | 67,091 |
| | 40,291 |
| | 107,382 |
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| Diesel fuels | 56,307 |
| | 33,442 |
| | 89,749 |
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| Other refined products | 10,927 |
| | 4,066 |
| | 14,993 |
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| Total production | 134,325 |
| | 77,799 |
| | 212,124 |
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| | | | | | | | |
| | Year Ended December 31, 2017 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| | | | | | |
| Gasoline | 72,778 |
| | 38,311 |
| | 111,089 |
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| Diesel fuels | 59,593 |
| | 30,816 |
| | 90,409 |
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| Other refined products | 11,335 |
| | 5,483 |
| | 16,818 |
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| Total production | 143,706 |
| | 74,610 |
| | 218,316 |
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(1) | During the three months ended December 31, 2018, management revised its internal and external approach to calculating refinery throughput and production data to include ethanol and biodiesel consumed at the refineries. Refer to Item 7, Results of Operations, Petroleum, for further discussion of this change.
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Supply
December 31, 2021 | 7
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The “Jayhawk” third-party crude oil pipeline, depicted in the graphic above and to the left, is in the process | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| | | | | |
| Total crude throughput | 100,722 | | | 70,636 | | | 171,358 | |
| All other feedstock and blendstock | 8,321 | | | 3,616 | | | 11,937 | |
| Total throughput | 109,043 | | | 74,252 | | | 183,295 | |
Production by Refinery | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| | | | | |
| Gasoline | 71,070 | | | 39,858 | | | 110,928 | |
| Diesel fuels | 53,441 | | | 31,662 | | | 85,103 | |
| Other refined products | 8,727 | | | 2,883 | | | 11,610 | |
| Total production | 133,238 | | | 74,403 | | | 207,641 | |
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| Year Ended December 31, 2020 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| | | | | |
| Gasoline | 59,419 | | | 38,640 | | | 98,059 | |
| Diesel fuels | 43,209 | | | 30,638 | | | 73,847 | |
| Other refined products | 7,072 | | | 2,654 | | | 9,726 | |
| Total production | 109,700 | | | 71,932 | | | 181,632 | |
Supply
The Coffeyville Refinery has the capability to process blends of a variety of crude oiloils ranging from heavy sour to light sweet crude oil. Currently, the Coffeyville Refinery crude oil slate consists of a blend of mid-continent domestic grades and various Canadian medium and heavy sours and other similarly sourced crudes. Other blendstocks include ethanol, biodiesel, normal butane, natural gasoline, alkylation feeds, naphtha, gas oil, and vacuum tower bottoms. The Wynnewood Refinery has the capability to process blends of a variety of crude oiloils ranging from medium sour to light sweet crude oil. Isobutane, gasoline components, and normal butane blendstocks are also typically used.
In addition to the use of third-party pipelines, we have an extensive gathering system consisting of logistics assets that are owned, leased, or part of a joint venture operation. These assets include the following:
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| | | As of December 31, 2021 |
| Pipeline Segment | | Length (miles) | | Capacity (bpd) |
| Joint Ventures: | | | | |
| Midway Pipeline LLC (“Midway JV”) (1) | | 99 | | 150,000 |
| Enable South Central Pipeline (“Enable JV”) (1) | | 26 | | 115,000 |
| Owned Pipelines: | | | | |
| East Tank Farm to Refinery 16” (2) | | 2 | | 160,000 |
| Broome to East Tank Farm 16” (2) | | 19 | | 120,000 |
| Broome to East Tank Farm 12” (2) | | 19 | | 52,000 |
| Enable tie-in to Payson 8” (Red River) | | 78 | | 40,000 |
| Payson to Cushing 10” (Red River) | | 30 | | 40,000 |
| Springer to Cushing 8” | | 122 | | 30,000 |
| Hooser to Broome 8” | | 43 | | 22,800 |
| Wynnewood to Springer 8” | | 23 | | 20,000 |
| Wynnewood to Maysville 8” | | 21 | | 20,000 |
| Madill to Springer 6” | | 32 | | 15,000 |
| Maysville to Cushing 6” & 8” | | 131 | | 14,000 |
| Velma to Maysville 6” & 8” | | 29 | | 8,000 |
| Plainville to Natoma 6” | | 11 | | 6,500 |
| Shidler to Hooser 4” | | 23 | | 6,500 |
| Phillipsburg to Plainville 6” | | 36 | | 6,000 |
| Enville to Wynnewood 4” & 6” | | 74 | | 6,000 |
| | | | | |
| Leased Pipelines: | | | | |
| Kelly to Caney Jct. 8” | | 66 | | 7,200 |
| Humboldt to Broome 8” | | 63 | | 7,000 |
| | | | | |
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| | | |
| | | As of December 31, 2018 |
| | Pipeline Segment | Length (miles) | Capacity (bpd) |
| Joint Ventures: | | |
| | Midway (1) | 100 | 120,000 |
| | Velocity (1) (2) | 26 | 80,000 |
| Owned Pipelines: | | |
| | Valley to Hooser 6” | 46 | 9,600 |
| | Valley to Hooser 8” | 20 | 9,600 |
| | Hooser to Broomer 8” | 43 | 22,800 |
| | Broome to East Tank Farm 12” (3) | 19 | 52,000 |
| | Broome to East Tank Farm 16” (3) | 18 | 120,000 |
| | East Tank Farm to Refinery 16” (3) | 2 | 160,000 |
| | Shidler to Hooser 4” | 23 | 6,500 |
| | Plainville to Phillipsburg 6” | 36 | 6,000 |
| | Plainville to Natoma 6” | 10 | 6,500 |
| | Cushing to Payson 10” (Red River) | 30 | 22,000 |
| | Payson to Ellis Jct 8” (Red River) | 73 | 22,000 |
| Leased Pipelines: | | |
| | Humboldt to Broome 8” | 62 | 7,000 |
| | Kelley to Barnsdall 8” | 31 | 3,600 |
| | Barnsdall to Caney 8” | 36 | 3,600 |
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(1) | CVR Refining participates in the ownership of these pipelines through equity method investments. Refer to Item 8, Note 4 (“Equity Method Investments”) for further discussion of these investments. |
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(2) | Velocity refers to the pipeline owned by our joint venture with Velocity Pipeline Partners, LLC (“VPP”), which was acquired by Enable Midstream Partners, LP. The capacity of the Enable line is being expanded to 115,000 bpd with an estimated completion date of February 2019. |
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(3) | In support of our Coffeyville Refinery, we own and operate a tank storage facility in close proximity to the Coffeyville Refinery (the “East Tank Farm”). |
(1)CVR Refining owns a 50% interest in the Midway JV and a 40% interest in the Enable JV. While CVR Refining has the ability to exercise influence through its participation on the board of directors of each of the Midway JV and the Enable JV, it does not serve as the day-to-day operator. We have determined that these entities should not be consolidated and apply the equity method of accounting. Refer to Part II, Item 8, Note 3 (“Equity Method Investments”) of this Report for further discussion of these investments.
(2)In support of our Coffeyville Refinery, we own and operate a tank storage facility in close proximity to the Coffeyville Refinery (the “East Tank Farm”).
For the acquisition of crude oil within close proximity of the Refineries, we operate a fleet of approximately 140127 trucks and have contracts with third-party trucking fleets to acquire and deliver crude oil to our pipeline system or directly to the Refineries for consumption or resale. For the year ended December 31, 2018,2021, the gathering system, which includes the pipelines outlined above and our trucking operations, supplied approximately 40%38% and 89%92% of the Coffeyville and Wynnewood refineries’Refineries’ crude oil demand, respectively. Regionally-sourcedRegionally sourced crude oils delivered to the Refineries usually have a transportation cost advantage compared to other domestic or international crudes given the Refineries’ proximity to the producing areas. However, sometimes slightly heavier and more sour crudes may offer goodimproved economics to the Refineries, including
notwithstanding the higher cost of transportation.transportation costs. The regionally-sourced crude oils we purchase are light and sweet enough to allow the Refineries to blend higher percentages of lower cost crude oils, such as heavy Canadian sour, to optimize economics within operational constraints.
Crude oils sourced outside of our gathering system are delivered to Cushing by various third-party pipelines, including the Keystone and Spearhead pipelines whereon which we can be subject to proration, and subsequently to the Broome Station facility via the Midway joint ventureJV pipeline. Our current contracted capacity includes the Pony Express and White Cliffs pipelines, respectively. From the Broome Station facility, crude oil is delivered to the Coffeyville refineryRefinery via the Refining Partnership’sPetroleum Segment’s 170,000 bpd proprietary pipeline system. Crude oils are delivered to the Wynnewood Refinery through third-party and joint venture pipelines and received into storage tanks at terminals located onwithin or near the refinery.
We also own storage tanks with total storage capacity of 3.8 million barrels, including 1.5 million barrels of tank storage in Cushing. Additionally, we lease tank storage totaling 2.52.2 million barrels, including 2.32.0 million barrels at Cushing.
We acquired the Blueknight Energy Partners, LP pipelines (the “BKEP / CRCT Pipeline System”) in February 2021, which complemented the Petroleum Segment’s existing refineries and pipeline systems. The BKEP / CRCT Pipeline System is based in the Wynnewood area. This new system consists of gathering pipelines, which provide the ability to deliver local crude oil to the Wynnewood Refinery. In addition to the gathering capability, the BKEP / CRCT Pipeline System also provides the optionality to deliver and/or receive crude oil from Cushing, Oklahoma on two separate lines.
December 31, 2018 | 11
The Coffeyville Refinery is connected to the mid-continent natural gas liquid commercial hub at Conway, Kansas by the inbound Enterprise Pipeline Blue Line. Natural gas liquid blendstocks, such as butanes and natural gasoline, are sourced and delivered directly into the refinery. In addition, Coffeyville Refinery’s proximity to Conway provides access to the natural gas liquid and liquid petroleum gas fractionation and storage capabilities.
Through the crude oil and other feedstock supply operations outlined above, and the associated markets available to it,us, we are able to source and refine crude oils from different locations and of different compositions when it is economically advantageous to do so. To capture favorable market differentials (including transportation costs) and produce higher value products, ourThe tables below present the total crude throughput has shifted toward more regional and lighter crude oils in 2018 compared to 2017, as illustrated inby refinery for the tables below.
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| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | |
| (in bpd) | Coffeyville | | Wynnewood | | Total | |
| | | | | | | | | | | |
| Regional Crudes | 31,350 |
| | 25 | % | | 54,746 |
| | 73 | % | | 86,096 |
| 43 | % |
| WTI | 66,952 |
| | 54 | % | | 2,354 |
| | 3 | % | | 69,306 |
| 35 | % |
| Midland WTI | 15,893 |
| | 13 | % | | 10,332 |
| | 14 | % | | 26,225 |
| 13 | % |
| Condensate | 4,992 |
| | 4 | % | | 7,237 |
| | 10 | % | | 12,229 |
| 6 | % |
| Heavy Canadian | 5,302 |
| | 4 | % | | — |
| | — | % | | 5,302 |
| 3 | % |
| Total crude throughput | 124,489 |
| | 100 | % | | 74,669 |
| | 100 | % | | 199,158 |
| 100 | % |
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| | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 | |
| (in bpd) | Coffeyville | | | | Wynnewood | | | | Total | |
| | | | | | | | | | | |
| Regional Crudes | 34,805 |
| | 26 | % | | 27,750 |
| | 38 | % | | 62,555 |
| 31 | % |
| WTI | 84,460 |
| | 64 | % | | 15,251 |
| | 21 | % | | 99,711 |
| 49 | % |
| Midland WTI | — |
| | — | % | | 29,045 |
| | 40 | % | | 29,045 |
| 14 | % |
| Condensate | 2,169 |
| | 2 | % | | 1,134 |
| | 2 | % | | 3,303 |
| 2 | % |
| Heavy Canadian | 10,135 |
| | 8 | % | | — |
| | — | % | | 10,135 |
| 5 | % |
| Total crude throughput | 131,569 |
| | 100 | % | | 73,180 |
| | 100 | % | | 204,749 |
| 100 | % |
years ended December 31, 2018 | 12
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| Regional Crude | 27,133 | | | 22 | % | | 60,287 | | | 82 | % | | 87,420 | | | 45 | % |
| WTI | 62,694 | | | 52 | % | | — | | | — | % | | 62,694 | | | 32 | % |
| WTL | 511 | | | — | % | | 3,430 | | | 5 | % | | 3,941 | | | 2 | % |
| Midland WTI | 452 | | | — | % | | 2,107 | | | 3 | % | | 2,559 | | | 1 | % |
| Condensate | 7,911 | | | 7 | % | | 7,360 | | | 10 | % | | 15,271 | | | 8 | % |
| Heavy Canadian | 3,684 | | | 3 | % | | — | | | — | % | | 3,684 | | | 2 | % |
| Other Crude Oil | 19,129 | | | 16 | % | | 202 | | | — | % | | 19,331 | | | 10 | % |
| Total crude throughput | 121,514 | | | 100 | % | | 73,386 | | | 100 | % | | 194,900 | | | 100 | % |
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| Year Ended December 31, 2020 |
| (in bpd) | Coffeyville | | Wynnewood | | Total |
| Regional Crude | 34,652 | | | 34 | % | | 56,932 | | | 81 | % | | 91,584 | | | 53 | % |
| WTI | 51,656 | | | 51 | % | | — | | | — | % | | 51,656 | | | 30 | % |
| WTL | — | | | — | % | | 6,235 | | | 8 | % | | 6,235 | | | 4 | % |
| Midland WTI | — | | | — | % | | 1,262 | | | 2 | % | | 1,262 | | | 1 | % |
| Condensate | 8,243 | | | 8 | % | | 6,207 | | | 9 | % | | 14,450 | | | 8 | % |
| Heavy Canadian | 1,020 | | | 1 | % | | — | | | — | % | | 1,020 | | | 1 | % |
| Other Crude Oil | 5,151 | | | 6 | % | | — | | | — | % | | 5,151 | | | 3 | % |
| Total crude throughput | 100,722 | | | 100 | % | | 70,636 | | | 100 | % | | 171,358 | | | 100 | % |
Marketing and Distribution
December 31, 2021 | 10
Marketing and Distribution
Our Coffeyville product marketing efforts are focused in the central mid-continent area through rack marketing, which is the supply of product through tanker trucks and railcars directly to customers located in close geographic proximity to the refinery and to customers at terminals on third-party refined products distribution systems; and bulk sales (sales into third-party pipelines) into the mid-continent markets and other destinations utilizing third-party product pipeline networks.
The Wynnewood Refinery ships its finished product via pipeline, railcar, and truck, focusing its efforts in Oklahoma and parts of Arkansas, as well as eastern Missouri. The pipeline system used by the Wynnewood Refinery is capable of multi-directional flow, providing access to Texas markets as well as adjoining states with pipeline connections. The Wynnewood Refinery also sells jet fuel to the U.S. Department of Defense via its segregated truck rack.
Customers
Customers for the Refineries’ petroleum products primarily include retailers, railroads, and farm cooperatives, and other refiners/marketers in Group 3 of the PADD II region because of their relative proximity to the Refineries and pipeline access. We typically sell bulk products to long-standing customers at spot market prices based on a Group 3 basis differential to prices quoted on the New York Mercantile Exchange (“NYMEX”), subject to other terms or adjustments, which are reported by industry market-related indices such as Platts and Oil Price Information Service (“OPIS”).
Rack sales are at posted prices that are influenced by the competitive forces in the Group 3 market.of the PADD II region among other factors. In addition, the Coffeyville Refinery sells hydrogen and by-products of its refining operations, such as petroleumpet coke, to an affiliate, CRNF, which is wholly owned by CVR Partners, pursuant to multi-year agreements. For the year ended December 31, 2018, only one2021, the Petroleum Segment’s top customer accounted for 10% or more16% of the Refining Partnership’s consolidated revenues.its net sales.
Competition
Our Petroleum Segment competes primarily on the basis of price, reliability of supply, availability of multiple grades of products, and location. The principal competitive factors affecting its refining operations are cost of crude oil and other
feedstocks, refinery complexity, refinery efficiency, refinery product mix, and product distribution and transportation costs.costs, and costs of compliance with government regulations, including the Renewable Fuel Standards (“RFS”). The locationlocations of the Refineries provides us with a reliable supply of crude oil and a transportation cost advantage over our competitors. We primarily compete against five refineries CHS Inc.’s McPherson Refinery; Holly Frontier Corporation’s El Dorado Refinery, Tulsa East and West Refineries; Phillips 66 Company’s Ponca Refinery; and Valero Energy Corporation’s Ardmore Refineryin the mid-continent region. In addition to these refineries, we compete against trading companies, as well as other refineries located outside the region that are linked to the mid-continent market through an extensive product pipeline system. These competitors include refineries locatedsystems, including those near the Gulf Coast, the Great Lakes, and the Texas panhandle region.regions.
Seasonality
Our Petroleum Segment operations experience seasonal fluctuations as demand for gasoline products is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic and road construction work. Demand for diesel fuel is higher during the planting and harvesting seasons. As a result, itsour results of operations for the Petroleum Segment for the first and fourth calendar quarters are generally lower compared to itsour results for the second and third calendar quarters. In addition, unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the markets in which we sell petroleum products can impact the demand for gasoline and diesel fuel.
Nitrogen Fertilizer
Our Nitrogen Fertilizer Segment is comprisedcomposed of the assets and operations of CVR Partners, including two nitrogen fertilizer manufacturing facilities located in Coffeyville, Kansas and East Dubuque, Illinois.
Facilities
Coffeyville Fertilizer Facility - We own and operate a nitrogen fertilizer production facility in Coffeyville, Kansas that includes a gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen, a 1,300 ton-per-dayton per day capacity ammonia unit, and a 3,000 ton-per-dayton per day capacity UAN unit (the “Coffeyville Fertilizer Facility”). The Coffeyville Fertilizer Facility is the only nitrogen fertilizer plant in North America that utilizes a pet coke gasification process to produce nitrogen fertilizer. The Coffeyville Fertilizer Facility’s largest raw material expense used in the production of ammonia is pet coke, which it purchases from our Coffeyville Refinery and third parties. For the years ended December 31, 2018, 20172021, 2020, and 2016,2019, the Coffeyville Fertilizer Facility purchased approximately $13$23 million, $8$18 million, and $8$20 million, respectively, of pet coke, which equaled an average cost per ton of $28, $17$44.69, $35.25, and $15,$37.47, respectively. For the years ended December 31, 2018, 20172021, 2020, and 2016,2019, we upgraded approximately 93%87%, 88%87%, and 93%90%, respectively, of our ammonia production into UAN, a product that presently generatesgenerated greater profit than ammonia for both 2021 and will continue to do so when2019 but, did not for 2020. When the economics are favorable.favorable, we expect to continue upgrading substantially all of our ammonia production into UAN.
East Dubuque Fertilizer Facility - We own and operate a nitrogen fertilizer production facility in East Dubuque, Illinois that includes a 1,075 ton-per-dayton per day capacity ammonia unit and a 1,100 ton-per-dayton per day capacity UAN unit (the “East Dubuque Fertilizer Facility”). The East Dubuque Fertilizer Facility has the flexibility to vary its product mix, enabling it to upgrade a portion of ammonia production into varying amounts of UAN, nitric acid, and liquid and granulated urea, depending on market demand, pricing, and storage availability. The East Dubuque Fertilizer Facility has direct access to a barge dock on the Mississippi River as well as a nearby rail spur serviced by the Canadian National Railway Company. The East Dubuque Fertilizer Facility’s largest raw material expense used in the production of ammonia is natural gas, which it purchases from third parties. TheFor the years ended December 31, 2021, 2020, and 2019, the East Dubuque Fertilizer Facility’s natural gas process results in a higher percentage of variable costs as compared to the Coffeyville Fertilizer Facility. For the year ended December 31, 2018, and 2017 the East Dubuque Facility incurred approximately $22$32 million, $20 million, and $26$20 million for feedstock natural gas used in production, respectively, which equaled an average cost of $3.15$3.95, $2.31, and $3.26$2.88 per MMBtu, respectively.
Commodities
The nitrogen products we produce are globally traded commodities and are subject to price competition. The customers for itsCVR Partners’ products make their purchasing decisions principally on the basis of delivered price and, to a lesser extent, on customer service and product quality. The selling prices of its products fluctuate in response to global market conditions, feedstock costs, and changes in supply and demand.
December 31, 20182021 | 1412
Agriculture
Agriculture
The three primary forms of nitrogen fertilizer used in the United States of America are ammonia, urea, and UAN. Unlike ammonia and urea, UAN can be applied throughout the growing season and can be applied in tandem with pesticides and herbicides, providing farmers with flexibility and cost savings. As a result of these factors, UAN typically commands a premium price to urea and ammonia, on a nitrogen equivalent basis. However, during 2020, UAN commanded a discount price to urea and premium to ammonia, on a nitrogen equivalent basis.
Nutrients are depleted in soil over time and, therefore, must be replenished through fertilizer use.application. Nitrogen is the most quickly depleted nutrient and must be replenished every year, whereas phosphate and potassium can be retained in soil for up to three years. Plants require nitrogen in the largest amounts, and it accounts for approximately 57%59% of primary fertilizer consumption on a nutrient ton basis, per the International Fertilizer Industry Association (“IFIA”).
Demand
Global demand for fertilizers is driven primarily by grain demand and prices, which, in turn, are driven by population growth, farmland per capita, dietary changes in the developing world and increased consumption of bio-fuels. According to the IFIA, from 19741976 to 2016,2019, global fertilizer demand grew 2% annually. Global fertilizer use, consisting of nitrogen, phosphate and potassium,potash, is projected to increase by 34% between 2010 and 20301% through 2023 to meet global food demand according to a study funded by the Food and Agricultural Organization of the United Nations. Currently, the developed world uses fertilizer more intensively than the developing world, but sustained economic growth in emerging markets is increasing food demand and fertilizer use. In addition, populations in developing countries are shifting to more protein-rich diets as their incomes increase, with such consumption requiring more grain for animal feed. As an example, China’s wheat and coarse grains production is estimated to have increased 32%40% between 20072011 and 2018,2021, but still failed to keep pace with increases in demand, prompting China to grow its wheat and coarse grain imports by more than 1,320%1,452% over the same period, according to the United States Department of Agriculture (“USDA”).
The United States is the world’s largest exporter of coarse grains, accounting for 33%29% of world exports and 29%27% of world production for the fiscal year ended September 30, 2018,December 31, 2021, according to the USDA. A substantial amount of nitrogen is consumed in production of these crops to increase yield. Based on Fertecon LimitedsLimited’s (“Fertecon”) 20182021 estimates, the United States is the world’s third largest consumer of nitrogen fertilizer and the world’s largest importer of nitrogen fertilizer. Fertecon is a reputable agency which provides market information and analysis on fertilizers and fertilizer raw materials for fertilizer and related industries, andas well as international agencies. Fertecon estimates indicate that the United States represented 12% of total global nitrogen fertilizer consumption for 2018,2021, with China and India as the top consumers representing 23%22% and 15% of total global nitrogen fertilizer consumption, respectively.
North American nitrogen fertilizer producers predominantly use natural gas as their primary feedstock. Over the last five years, U.S. oil and natural gas reserves have increased significantly due to, among other factors, advances in extracting shale oil and gas. More recently, global demand has slowed with production staying steady evengas, as well as relatively high oil and gas prices. More recently, European and Asian natural gas prices have declined substantially overincreased significantly since 2020 due to reduced production volumes and higher global demand, as economies began to recover from the past two years.global COVID-19 pandemic. In Europe, the increase in natural gas prices as a feedstock has caused multiple fertilizer plant shut-ins, and certain European countries have curtailed industrial natural gas usage, resulting in deteriorated economics for producing fertilizers in the region. In addition, China and Russia have restricted exports of fertilizers in order to ensure domestic availability. In North America, natural gas prices also increased throughout 2021, but higher nitrogen fertilizer prices more than offset the rise in natural gas costs. As a result, North America has become acontinues to be the low-cost region for nitrogen fertilizer production.
Raw Material Supply
Coffeyville Fertilizer Facility - During the past five years, just under 70% (2018 - 59%)48% of the Coffeyville Fertilizer Facility’s pet coke requirements on average were supplied by our adjacent Coffeyville Refinery pursuant to a multi-year agreement. Historically, the Coffeyville Fertilizer Facility has obtained the remainder of its pet coke requirements through third parties, such as other mid-continent refineries or pet coke brokers at spot-prices. In 2018, we entered into a term deal with a third-party contracts typically priced at a discounteddiscount to the spot market. In 2018, a larger2021, 2020, and 2019, our supply of pet coke from the Coffeyville Refinery declined to approximately 43%, 33%, and 40%, respectively, generally attributable to increased processing of shale crude oil, which reduced the amount of third partypet coke produced by the refinery and increased the amount of third-party purchases were made at spot prices due to less supply being available from the Coffeyville Refinery. prices.
With increased reliance on third-party pet coke, we have contracts with four vendors, which could be delivered by truck, railcar or barge.
Additionally, theour Coffeyville Fertilizer Facility relies on a third-party air separation plant at its location that provides contract volumes of oxygen, nitrogen, and compressed dry air to the Coffeyville Fertilizer Facility gasifiers. The reliability of the air separation plant can have a significant impact on our Coffeyville Fertilizer Facility operations. In 2020, to mitigate future impacts, we executed a new product supply agreement that obligates the counterparty to invest funds to upgrade its facility to reduce downtime over the next several years. Should the oxygen volume fall below a specified level, the on-site vendor will provide excess oxygen through its own mechanism or through third-party purchases.
East Dubuque Fertilizer Facility - The East Dubuque Fertilizer Facility uses natural gas to produce nitrogen fertilizer. We are typicallygenerally able to purchase natural gas at competitive prices due to the plant’sfacility’s connection to the Northern Natural Gas interstate pipeline system, which is within one mile of the facility, and a third-party owned and operated pipeline. The pipelines are connected to Nicor Inc.’sa third-party distribution system at the Chicago Citygate receipt point and at the Hampshire interconnect from which natural gas is transported to the East Dubuque Fertilizer Facility. As of December 31, 2018,2021, we had commitments to purchase approximately 1.41 million MMBtus of natural gas supply for planned use in our East Dubuque Fertilizer Facility in both January and February 2019of 2022 at a weighted average rate per MMBtu of approximately $3.84,$5.96 and $5.95, respectively, exclusive of transportation cost.
Marketing and Distribution
Our Nitrogen Fertilizer Segment primarily markets UAN products to agricultural customers and ammonia products to agricultural and industrial customers. UAN and ammonia, including freight, accounted for approximately 72%65% and 20%28%, respectively, of our Nitrogen Fertilizer Segment’s net sales for the year ended December 31, 2018.2021.
UAN and ammonia are primarily distributed by truck or by railcar. If delivered by truck, products are most commonly sold on a free-on-board (“FOB”) shipping point basis, and freight is normally arranged by the customer. We operate a fleet of railcars for use in product delivery, and, ifdelivery. If delivered by railcar, the products are most commonly sold on a FOB destination point basis, and we typically arrange the freight.
NitrogenThe nitrogen fertilizer products leave the Coffeyville Fertilizer Facility either in railcars for destinations located principally on the Union Pacific or Burlington Northern Santa Fe railroads or in trucks for direct shipment to customers. The East Dubuque Fertilizer Facility primarily sells product to customers located within 200 miles of the facility. In most instances, customers take delivery of nitrogen products at the East Dubuque Fertilizer Facility and arrange to transport them to their final destinations by truck. Additionally, the East Dubuque Fertilizer Facility has direct access to a barge dock on the Mississippi River, as well as a nearby rail spur serviced by the Canadian National Railway Company.
Customers
We sellRetailers and distributors are the main customers for UAN products to retailers and, distributors. In addition, we sellmore broadly, the industrial and agricultural sectors are the primary recipients of our ammonia to agricultural and industrial customers.products. Given the nature of theour nitrogen fertilizer business, and consistent with industry practice, most ofwe sell our contractsproducts on a wholesale basis under a contract or by purchase order. Contracts with customers are for a termgenerally contain fixed pricing and most have terms of 12-month or less.less than one year. Some of our industrial sales include long-term purchase contracts. For the year ended December 31, 2018,2021, the top five customers in the aggregate represented 32% of the nitrogen fertilizer segment’s net sales. The Nitrogen Fertilizer Segment’s top customer accounted for approximately 14%represented 13% of the its net sales.
Competition
Our Nitrogen Fertilizer Segment produces globally traded commodities and has competitors in every region of the world. The industry is dominated by price considerations, which are driven by raw material and transportation costs, currency fluctuations and trade barriers. Our Nitrogen Fertilizer Segment has experienced and expectsis expected to continue to meetexperience significant levels of competition from currentdomestic and potential competitors,foreign nitrogen fertilizer producers, many of whom have significantly greater financial and other resources. Competition in the nitrogen fertilizer industry is dominated by price considerations. However, duringDuring the spring and fall fertilizer application seasons,periods in the United States, farming activities intensify and delivery capacitygeographic proximity to these activities is also a significant competitive factor.advantage for domestic producers. We seasonally adjust inventory to enhancemanage our manufacturing and distribution operations.operations to best serve our customers during these critical periods.
Subject to location and other considerations, our major competitors in the nitrogen fertilizer business include CF Industries Holdings, Inc., including its majority owned subsidiary Terra Nitrogen Company, L.P.; LSB Industries, Inc.; Koch Fertilizer Company, LLC; and Nutrien Ltd. (formerly known as Agrium, Inc. and Potash Corporation of Saskatchewan, Inc.). Domestic competition is intense due to customers’ sophisticated buying tendencies and competitor strategies that focus on cost and service. We also encounter competition from producers of fertilizer products manufactured in foreign countries.countries, including the threat of increased production capacity. In certain cases, foreign producers of fertilizer who export to the United States may be subsidized by their respective governments.
The decline of natural gas prices in recent periods has led to existing and new producers considering construction of new or expanding existing nitrogen fertilizer production facilities in the United States. The substantial majority of the incremental nitrogen fertilizer supply associated with the construction of confirmed new production facilities is expected to be online in 2018. Once the increased production comes on-stream, Blue, Johnson & Associates, Inc., a company management considers to provide reliable fertilizer industry forecasts, expects the United States will still require net imports into the United States to meet domestic demand for nitrogen fertilizers.
Seasonality
Because the Nitrogen Fertilizer Segment primarily sells agricultural commodity products, its business is exposed to seasonal fluctuations in demand for nitrogen fertilizer products in the agricultural industry. In addition, the demand for fertilizers is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers who make planting decisions based largely on the prospective profitability of a harvest. The specific varieties and amounts of fertilizer they apply depend on factors like crop prices, farmers’ current liquidity, soil conditions, weather patterns, and the types of crops planted. The nitrogen fertilizer segmentNitrogen Fertilizer Segment typically experiences higher net sales in the first half of the calendar year, which is referred to as the planting season, and its net sales tend to be lower during the second half of each calendar year, which is referred to as the fill season.
Environmental Matters
Our petroleum and nitrogen fertilizer businesses are subject to extensive and frequently changing federal, state, and local environmental health and safety laws and regulations governing the emission and release of hazardousregulated substances into the environment, the transportation, storage, and disposal of waste, the treatment and discharge of waste water,wastewater and stormwater, the storage, handling, use and transportation of petroleum and nitrogen products, and the characteristics and composition of gasoline, diesel fuels, UAN, and ammonia. These laws and regulations and the enforcement thereof impact the petroleum segmentour segments and operations and the nitrogen fertilizer segment andtheir operations by imposing:
•restrictions on operations or the need to install enhanced or additional controls;control and monitoring equipment;
•liability for the investigation and remediation of contaminated soil and groundwater at current and former facilities (if any) and for off-site waste disposal locations; and
•specifications for the products marketed by the petroleum segmentPetroleum and the nitrogen fertilizer segment,Nitrogen Fertilizer Segments, primarily gasoline, diesel fuel, UAN, and ammonia.
Our operations require numerous permits, licenses, and authorizations. Failure to comply with these permits or environmental laws and regulations could result in fines, penalties, or other sanctions or a revocation of our permits.permits, licenses, or authorizations. In addition, the laws and regulations to which we are subject are often evolving and many of them have or could become more stringent or have or could become subject to more stringent interpretation or enforcement by federal or state agencies. These laws and regulations could result in increased capital, operating, and compliance costs.
The Federal Clean Air Act (“CAA”)
The CAA and its implementing regulations, as well as corresponding state laws and regulations governing air emissions, affect the petroleum segmentPetroleum and the nitrogen fertilizer segmentNitrogen Fertilizer Segments both directly and indirectly. Direct impacts may occur through the CAA’s permitting requirements and/or emission control and monitoring requirements relating to specific air pollutants, as well as the requirement to maintain a risk management program to help prevent accidental releases of certain regulated substances. The CAA affects the petroleum segmentPetroleum and the nitrogen fertilizer segmentNitrogen Fertilizer Segments by extensively regulating the air emissions of sulfur dioxide (“SO2”), volatile organic compounds, nitrogen oxides, and other substances, including those emitted by mobile sources, which are direct or indirect users of our products. Some or all of the regulations promulgated pursuant to the CAA, or any future promulgations of regulations, may require the installation of controls or changes to the petroleum facilities and/or the nitrogen fertilizer facilities (collectively referred to as the “Facilities”) to maintain compliance. If new controls or changes to operations are needed, the costs could be material.
The regulation of air emissions under the CAA requires that we obtain various construction and operating permits and incur capital expenditures for the installation of certain air pollution control devices at our operations. Various regulationsstandards and programs specific to our operations have been implemented, such as the National Emission Standard for Hazardous Air Pollutants, the New Source Performance Standards, and the New Source Review.
The Federal Clean Water ActEPA regulates greenhouse gas (“CWA”GHG”)
The CWA emissions under the CAA. In October 2009, the EPA finalized a rule requiring certain large emitters of GHGs to inventory and its implementing regulations, as wellreport their GHG emissions to the EPA. In accordance with the rule, our Facilities monitor and report our GHG emissions to the EPA. In May 2010, the EPA finalized the “Greenhouse Gas Tailoring Rule,” which established GHG emissions thresholds that determine when stationary sources, such as the corresponding state laws and regulations that govern the discharge of pollutants into the water, affect the petroleum segmentRefineries and the nitrogen fertilizer segment. facilities, must obtain permits under the Prevention of Significant Deterioration (“PSD”) and Title V programs of the CAA. Under the rule, facilities already subject to the PSD and Title V programs that increase their emissions of GHGs by a significant amount are required to undergo PSD review and to evaluate and implement air pollution control technology, known as “best available control technology,” to reduce GHG emissions.
The CWA’s permitting requirements establish discharge limitations basedBiden Administration has signaled that it will take steps to address climate change.On January 20, 2021, the White House issued its Executive Order titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” as well as a formal notification re-accepting entry of the United States into the Paris Agreement. On January 27, 2021, the White house issued another climate-related Executive Order, titled “Tackling the Climate Crisis at Home and Abroad.” On April 22, 2021, the Biden Administration announced a new target for the United States to achieve a 50 to 52 percent reduction from 2005 levels in economy-wide net GHG emissions in 2030.
The EPA’s approach to regulating GHG emissions may change, including under future administrations. Therefore, the impact on technology standards, water qualityour Facilities due to GHG regulation is unknown.
Recent Greenhouse Gas Footprint Reduction Efforts
In October 2020, the Nitrogen Fertilizer Segment announced that it generated its first carbon offset credits from voluntary nitrous oxide abatement at its Coffeyville Fertilizer Facility. The Nitrogen Fertilizer Segment has similar nitrous oxide abatement efforts at its East Dubuque Fertilizer Facility. According to the EPA, nitrous oxide represents approximately 7% of carbon dioxide-equivalent (“CO2e”) emissions in the United States.
The Nitrogen Fertilizer Segment previously entered into a Joint Development Agreement with ClimeCo, a developer of emission-reduction projects for nitric acid plants, to jointly design, install and operate a tertiary abatement system at one of its nitric acid plants in Coffeyville. The system was designed to abate 94% of all N2O in the unit while preventing the release of approximately 450,000 metric tons of carbon dioxide equivalent on an annualized basis. The N2O abatement systems at the East Dubuque Fertilizer Facility’s two nitric acid plants have abated, on average, the annual release of approximately 265,000 metric tons of CO2e during the past five years.
CVR Partners’ N2O abatement projects are registered with the Climate Action Reserve (the “Reserve”), a carbon offset registry for the North American market. The Reserve employs high-quality standards and restrictions onan independent third-party verification process to issue its carbon credits, known as Climate Reserve Tonnes.
The Nitrogen Fertilizer Segment also sequesters carbon dioxide that is not utilized for urea production at its Coffeyville Fertilizer Facility by capturing and purifying the total maximum daily loadCO2 as part of pollutants allowedits manufacturing process and then transfers it to enterits partner, CapturePoint LLC (formerly Perdure Petroleum LLC), that compresses and ships the CO2 for sequestration through Enhanced Oil Recovery (“EOR”). In January 2021, the Internal Revenue Service published final regulations under Section 45Q which provides tax credits to encourage CO2 sequestration. We believe that our process for CO2 sequestration would qualify for tax credits under Section 45Q and intend to pursue a particular water body based on its use.claim of those credits starting in 2022.
Combining our nitrous oxide abatement and CO2 sequestration activities should reduce our CO2e footprint by over 1 million metric tons per year. In addition, water resources are becomingour Coffeyville Fertilizer Facility is uniquely qualified to produce hydrogen and ammonia that could be certified ‘blue’ to a market that is increasingly demanding reduced carbon footprints. These greenhouse gas footprint reduction efforts support our core Values of Environment and Continuous Improvement, and our goal of continuing to produce nitrogen fertilizers that feed the world’s growing population in the future may become scarcer, and many refiners, including us, are subject to use restrictions in the event of low availability conditions. Our Refineries have contracts in place to receive water during certain water shortage conditions, but these conditions could change over time depending on the scarcity of water.most environmentally responsible way possible.
Release Reporting
The release of hazardous substances or extremely hazardous substances into the environment is subject to release reporting requirements under federal and state environmental laws. Our Facilities periodically experience releases of hazardous and extremely hazardous substances from their equipment. Our Facilities periodically have excess emission events from flaring and other planned and unplanned start-up, shutdown and malfunction events. From time to time, the U.S. Environmental Protection Agency (“EPA”) has conducted inspections and issued information requests to us with respect to our compliance with reporting requirements under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and the Emergency Planning and Community Right-to-Know Act. If we fail to timely or properly report a release, or if a release violates the law or our permits, we could become the subject of a governmental enforcement action or third-party claims. Government enforcement or third-party claims relating to releases of hazardous or extremely hazardous substances could result in significant expenditures and liability.
Fuel Regulations
In April 2014, the EPA promulgated the Tier 3 Motor Vehicle Emission and Fuel Standards (“Tier 3”), which require that gasoline contain no more than ten parts per million of sulfur on an annual average basis. The Coffeyville Refinery was required to be in compliance with the more stringent emission standards as of January 2017 and the Wynnewood Refinery’s compliance deadline was December 2018. The Refineries are currently in compliance with the EPA’s Tier 3 Standards.
In 2007, the EPA promulgated the Mobile Source Air Toxic II (“MSAT II”) rule that required refiners to meet a reduced gasoline benzene content standard for gasoline by 2011, with an extended deadline for approved small refiners such as us. The Refineries are in compliance with the EPA’s MSAT II rule.
Renewable Fuel StandardsStandard
Pursuant to the Energy Policy Act of 2005 and Energy Independence and Security Act of 2007 (“EISA”), the EPA has promulgated the Renewable Fuel Standard (“RFS”). The RFS, which requires refiners to either blend “renewable fuels,” such as ethanol and biofuels, into their
transportation fuels or purchase renewable fuel credits, known as RINs,renewable identification numbers (“RINs”), in lieu of blending. Under the RFS, the volume of renewable fuels that refineries like Coffeyville and Wynnewood are obligated to blend into their finished transportation fuel is adjusted annually by the EPA based on expected fuel supplydemand and other conditions to meet the statutory mandates that increase annually, but which may be waived by the EPA under certain conditions. The volume of renewable fuels required by EISA increased from 9 billion gallons in 2008 to 2233 billion gallons in 20162021. The EPA has statutory authority to 36 billion gallons indetermine RFS volumes after 2022. In addition to the total renewable fuel volume mandate, there arethe regulation includes sub-mandates for advanced biofuels,biofuel, cellulosic biofuel, and biomass-based diesel. Under the cellulosic waiver authority provided to the EPA by the Clean Air Act,CAA, if the EPA’s projected volume of cellulosic biofuel production for a calendar year is less than its statutory mandate, the EPA must reduce the required volume of cellulosic biofuel accordingly and provide obligated parties the opportunity to purchase cellulosic waiver credits. The EPA also has the discretion to reduce the total renewable fuel and advanced biofuel requirements by the same amount as it reduced the cellulosic biofuel volume. The petroleum segmentPetroleum Segment (like many refiners) is not able to meet its annual renewable volume obligation (“RVO”) through blending, so it has had to purchase RINs on the open market as well as obtain cellulosic waiver credits from the EPA, in order to comply with the RFS. The cost of purchasing RINs and cellulosic waiver credits fluctuates and can be significant. The price of RINs has beenbecame extremely volatile aswhen the EPA’s proposed renewable fuel volume mandates approached and exceeded the “blend wall.” The blend wall refers to the point at which the amount of ethanol required to be blended into the transportation fuelgasoline supply exceeds the demand for transportation fuel containing such levels oflevel at which most engines can safely run on gasoline blended with ethanol. The blend wall is generally considered to be reached when more than 10%10 percent ethanol by volume (“E10 gasoline”E10”) is blended into transportation fuel.
In December 2018,gasoline. The volatility of RIN prices also increased significantly in response to a number of uncertainties regarding the EPA published the final renewable fuel volumes for 2019, and the biomass-based diesel volume for 2020. As in past years, the volumes increased from the previous year, but are lower, with the exception of the volume for biomass-based diesel, than the volumes required by the Clean Air Act. EPA used its cellulosic waiver authority to lower the volumes.
Throughout 2018, various groups including the Renewable Fuels Association and Growth Energy brought cases in federal courts to challenge the EPA’s implementation of the RFS program includingin 2020, 2021, and has continued into 2022.
In May 2019, the EPA’s decisionEPA finalized regulatory changes to grant hardship reliefallow gasoline blended with up to roughly 25 small refineries for15 percent ethanol (“E15”) to take advantage of a waiver during the 2017 compliancesummer months that previously only applied to E10, which meant that E15 could be sold year-round rather than just eight months of the year. In November 2018, a biofuel organization, Producers of Renewable United for Integrity Truth and Transparency, askedHowever, in June 2019, the D.C. Circuit to “freeze” the waiver program, but the court denied the biofuel organization’s request. The EPA has not yet acted on any small refinery hardship petitions for the 2018 compliance year.
Several RFS-related rulemakings are expected to occur in 2019. One relates to a lawsuitrule was challenged in the U.S.United States District Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”). The D.C. Circuit ultimately overturned the E15 rule in July 2021, after which several biofuelsethanol industry groups challenged EPA’s finalappealed the decision in the U.S. Supreme Court. On January 10, 2022, the U.S. Supreme Court denied the appeal, upholding the D.C. Circuit’s vacatur of the E15 rule.
On December 7, 2021, the EPA proposed a package of actions setting renewable fuelsblending volumes for 2014 through 2016. In2020, 2021, and 2022 (the “2020-2022 Volumes Proposal”). First, the 2020-2022 Volumes Proposal includes proposed renewable blending volumes for 2021 and 2022, after the EPA failed to meet its statutory deadlines to set the 2021 and 2022 renewable volume obligations by November 30, 2020 and 2021, respectively. The proposed volume requirements are 18.52 billion gallons for 2021 and 20.77 billion gallons for 2022. Second, the 2020-2022 Volumes Proposal would lower the previously established renewable fuel volume requirements for 2020 from 20.09 billion gallons to 17.13 billion gallons. The D.C. Circuit consolidated cases challenging various aspects of the previously established renewable fuel volume requirements for 2020, and the biomass-based diesel volume for 2021, remains active, but it is unknown at this time how those cases will be resolved in light of the EPA’s proposed modifications to the 2020 renewable volume requirements.
Third, the proposal also partially reissues the 2016 renewable fuel volumes in response to a July 2017 the D.C. Circuit vacateddecision (1) vacating the EPA’s decision to reduce the 2016 volumes under its “inadequate domestic supply” waiver authority and remanded the rule(2) remanding to the EPA for further reconsideration. The EPA has not yet re-proposedreissuance of the 2016 renewable fuels volumes. Specifically, the EPA proposes a supplemental volume obligations but might do soof 250 million gallons in 2022 and states its intention to propose an additional supplemental volume of 250 million gallons for 2023 in a rulemaking in 2019, which could result in an increase insubsequent action.
Finally, the volume mandatesproposal utilizes the CAA “reset” authority to reduce volumes for 2016 to increaseeach 2020, 2021, and as a result, require Coffeyville and Wynnewood to purchase more RINs for 2016 compliance.
Another expected rulemaking involves the “reset” provision of the Clean Air Act.2022. Under the reset provision, if the EPA waives the statutory volumes for any of the four fuel categories by at least 20% for two consecutive years or by at least 50% for a single year, then the EPA must modify the statutory volumes for all subsequent years for that fuel category. The reset has been triggered in previous years for both advanced biofuel and cellulosic biofuel, but this is the first time the EPA has applied the reset authority.
The final 2020-2022 volumes might differ from the proposal, and most recently,will determine the Coffeyville Refinery’s and, unless exempted, the Wynnewood Refinery’s renewable volume obligations.
On February 2, 2022, the EPA issued a final rule to extend the 2019 RFS compliance deadline for small refineries and the 2020 and 2021 RFS compliance deadlines for all obligated parties. The deadlines are tied to the date on which the 2021 renewable blending volumes are finalized. The EPA also issued a new method for determining RFS compliance deadlines for
2022 and beyond, under which the deadlines would automatically be extended in the event the EPA fails to promulgate the annual renewable fuel volumes by the deadline provided in the CAA. Unless overturned, this new rule alters the deadlines by which the Coffeyville Refinery and, unless exempted, the Wynnewood Refinery must comply with the RFS obligations. CRRM and WRC filed a Petition for Review of this final rule triggeredwith the reset provisionUnited States Court of Appeals for total renewable fuel. In October 2018, the EPA reported that it will begin a rulemaking in 2019 to resetDistrict of Columbia Circuit on February 4, 2022, which Petition for Review remains pending.
Additional RFS-related rulemakings and administrative actions may occur and, if finalized, would impact the volumes for cellulosic biofuel, advanced biofuel,Coffeyville Refinery’s and total renewable fuel for compliance years 2020-2022. During the rulemaking, the EPA may either increase or decrease the volumes, in either case impacting Coffeyville’s and Wynnewood’sWynnewood Refinery’s obligations under the RFS.
Greenhouse Gas Emissions (“GHG”)
The EPA regulates GHG emissions under the Clean Air Act. In October 2009, First, the EPA finalizedissued a rule requiring certain large emitters of GHGs to inventory and report their GHG emissions to the EPA. In accordance with the rule, our facilities monitor and report our GHG emissions to the EPA. In May 2010,document entitled Proposed RFS Small Refinery Exemption Decision (“Proposed Denial”), announcing that the EPA finalized the “Greenhouse Gas Tailoring Rule,” which established GHG emissions thresholds that determine when stationary sources, such as the Refineries and the nitrogen fertilizer facilities, must obtain permits under Prevention of Significant Deterioration (“PSD”) and Title V programsis changing its statutory interpretation of the federal Clean Air Act. UnderCAA and, applying this new interpretation, proposing to deny 65 SRE petitions currently pending before the rule, facilities already subject to the PSD and Title V programs that increase their emissions of GHGs by a significant amount are required to undergo PSD review and to evaluate and implement air pollution control technology, known as “best available control technology,” to reduce GHG emissions.
In December 2010,agency. Second, on January 3, 2022, the EPA reached a settlement agreement with numerous parties under which it agreed to promulgate New Source Performance Standards (“NSPS”) to regulate GHG emissions from petroleuminformed small refineries and electric utilities by November 2012. In September 2014, the EPA indicated(including WRC’s Wynnewood Refinery) that the petroleum refining sector risk rule, proposedAgency is considering including the 2018 small refinery hardship petitions in June 2014 to address air toxicsthe Proposed Denial. The EPA’s review of the 2018 petitions follows the D.C. Circuit’s December 8, 2021, order granting the EPA’s motion for voluntary remand of all of the 2018 hardship decisions, and volatile organic compounds from refineries, may make it unnecessaryimposing a deadline of April 7, 2022, for the EPA to regulate GHG emissions from petroleum refineries at this time.act on remand. The final rule, which was publishedEPA requested comments on the Proposed Denial by February 7, 2022. The EPA’s action on the pending 2019, 2020, and 2021 hardship petitions, and its review of the 2018 hardship petition, will impact the Wynnewood Refinery’s renewable volume obligations.
The Federal Clean Water Act (“CWA”)
The CWA and its implementing regulations, as well as the corresponding state laws and regulations that govern the discharge of pollutants into the water, affect the Petroleum and Nitrogen Fertilizer Segments. The CWA’s permitting requirements establish discharge limitations that may be based on technology standards, water quality standards, and restrictions on the total maximum daily load of pollutants allowed to enter a particular water body based on its use. In addition, water resources are becoming more scarce, and many refiners, including us, are subject to use restrictions in the Federal Registerevent of low availability conditions. Our Refineries and the Coffeyville Fertilizer Facility have contracts in place to receive water during certain water shortage conditions, but these conditions could change over time depending on December 1, 2015, addresses air toxics and volatile organic compounds and places additional emission control requirements and work practice standards on FCCUs, storage tanks, flares, coking units and other equipment at petroleum refineries. Therefore, we do not currently expect that the EPA will be issuing regulations on GHG from petroleum refineries at this time but that it may do so in the future.scarcity of water.
In October 2015, EPA promulgated NSPS for carbon dioxide emissions from electric utilities. However, since the change in administration in 2017, EPA has shifted its regulatory approach of GHG emissions. In December 2018, EPA proposed amendments to the 2015 NSPS that, among other things, would replace the determination of the best system of emission reduction (“BSER”) with a less costly and burdensome BSER determination for new coal-fired units. Also, in 2018, EPA proposed the Affordable Clean Energy (“ACE”) Rule to replace the 2015 Clean Power Plan, which represented the Obama administration’s signature policy to regulate GHGs. The proposed ACE rule would establish emission guidelines for states to address GHGs from existing coal-fired power plants and update the BSER for those plants.
EPA’s approach to regulating GHG emissions may change again under future administrations. Therefore, the impact on our Facilities due to future GHG regulation is unknown.
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and the Emergency Planning and Community Right-to-Know Act (“EPCRA”)
The release of hazardous substances or extremely hazardous substances into the environment is subject to release reporting requirements under federal and state environmental laws. Our Facilities also periodically experience releases of hazardous and extremely hazardous substances from their equipment. Our Facilitiesequipment and periodically have excess emission events from flaring and other planned and unplanned start-up, shutdown and malfunction events. From time to time, the EPA has conducted inspections and issued information requests to us with respect to our compliance with reporting requirements under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)CERCLA and the Emergency Planning and Community Right-
to-Know Act.EPCRA. If we fail to timely or properly report a release, or if a release violates the law or our permits, we could become the subject of a governmental enforcement action or third-party claims. Government enforcement or third-party claims relating to releases of hazardous or extremely hazardous substances could result in significant expenditures and liability.
Resource Conservation and Recovery Act (“RCRA”)
Our facilitiesFacilities are subject to the RCRA requirements for the generation, transportation, treatment, storage, and disposal of solid and hazardous wastes. When feasible, RCRA-regulated materials are recycled instead of being disposed of on-site or off-site. RCRA establishes standards for the management of solid and hazardous wastes. Besides governing current waste disposal practices, RCRA also addresses the environmental effects of certain past waste disposal practices, the recycling of wastes, and the regulation of underground storage tanks containing regulated substances. Refer to Part II, Item 8, Note 10 (“Commitments and Contingencies”), “Environmental, Health and Safety (“EHS”) Matters” for further discussion of “RCRA Compliance Matters.”
Waste Management - There are two closed hazardous waste units at the Coffeyville Refinery and fourteen other solid waste management units in the process of being closed pending state agency approval. There is one closed hazardous waste unit and one active hazardous waste storage tank at the Wynnewood Refinery. In addition, one closed, interim status, hazardous waste land farm located at the now-closed Phillipsburg terminal is under long-term post closure care.
Impacts of Past Manufacturing - In March 2004, two of our subsidiaries entered into a Consent Decree (“2004 Consent Decree”) with the EPA and the Kansas Department of Health and Environment (the “KDHE”) whichthat required us to assume two RCRA corrective action orders issued to Farmland, the prior owner of the Coffeyville refinery. We are alsoRefinery. Until January 21, 2021, we were subject to a 1994 EPA administrative order related to investigation of possible past releases of hazardous materials to the environment at the Coffeyville Refinery. In accordance with the order, we have conducted the required investigation and interim remediation projects and documented existing soil and groundwater conditions. In June 2017, the Coffeyville Refinery submitted an amended RCRA post-closure permit application to the KDHE to complete closure of former hazardous waste management units at the Coffeyville Refinery and to perform corrective action at the site. The KDHE approved the post-closure permit application in July 2019, and the RCRA permit was issued in December 16, 2020. The EPA terminated the 1994
administrative order on January 21, 2021. On January 13, 2021, the Coffeyville Fertilizer Facility entered into an agreement with the KDHE to address certain historical releases of UAN located on property held by CRNF that comingled with legacy groundwater contamination from the adjacent Coffeyville Refinery. The cleanup provisions of the agreement with the KDHE are held in abeyance so long as the Coffeyville Refinery conducts corrective action for these comingled historical releases in accordance with CRRM’s RCRA permit. The now-closed Phillipsburg terminal is subject to a 1996 EPA administrative order related to investigation of releases of hazardous materials to the environment at the Phillipsburg terminal, which operated as a refinery until 1991. The Phillipsburg terminal investigation is complete and corrective measures to be implemented to addressare in place implementing the EPA’s Statement of Basis and Final Remedy Decision issued in July 2018 are being evaluated.2018. The Wynnewood Refinery operates under a RCRA permit. A RCRA facility investigation has been completed in accordance with the terms of the permit. Based on the facility investigation and other available information, WRC hasWynnewood Refining Company, LLC (“WRC”) entered into a consent order with the Oklahoma Department of Environmental Quality (“ODEQ”(the “ODEQ”) requiring further investigations of groundwater conditions and enhancements of existing remediation systems. We have completed the groundwater investigation at the Wynnewood Refinery and the ODEQ has approved our ongoing corrective actions. The consent order was terminated by the ODEQ in July 2019.
Financial Assurance - We are required under the 2004 Consent Decree, to establish financial assurance to secure the current projected clean-up costs of $6 million for the Coffeyville Refinery and $6 million for the now-closed Phillipsburg terminal in the event we fail to fulfill our clean-up obligations. In accordance with the 2004 Consent Decree, as modified by a 2010 agreement between CRRM, CRT,Coffeyville Resources Terminal, LLC (“CRT”), the EPA, and the KDHE, thisto establish financial assurance to secure the current projected clean-up cost for the now-closed Phillipsburg terminal. This financial assurance is currently provided by a bond in the amount of $3$2 million. The $2 million bond amount is reduced each year based on actual expenditures for clean-up obligations at the Phillipsburg terminal and a letter of credit in the amount of $0.3 million for estimated costs to close regulated hazardous waste management units at the Coffeyville Refinery.corrective actions. Additional self-funded financial assurance of approximately $6 million and $3 million is required to meet our RCRA financial assistance obligations for the Coffeyville Refinery and Phillipsburg terminal, respectively. The $3 million bond amount is reduced each year based on actual expenditures for corrective actions and the letter of credit and the self-funded mechanisms are re-evaluated and adjusted on an annual basis. Current RCRA financial assurance requirements for the Wynnewood Refinery total $0.2$0.3 million for hazardous waste storage tank closure and post-closure monitoring of a closed storm water retention pond. These RCRA financial assurance obligations are currently being satisfied by a surety bond. The Company’s financial assurance mechanisms are re-evaluated and adjusted on an annual basis. In preparation for renewal of its RCRA permit, the Wynnewood Refinery supplied the ODEQ an estimate of the monitoring and clean-up costs anticipated under the reissued RCRA permit. Additional financial assurance of approximately $3 million will be required for the Wynnewood Refinery when the ODEQ issues the renewed RCRA permit.
Waste Management - There are fourteen closed hazardous waste units at the Coffeyville Refinery. There is one closed hazardous waste unit and one active hazardous waste storage tank at the Wynnewood Refinery. In addition, 30 years of long-term post-closure care was completed at one closed, interim status, hazardous waste landfarm located at the now-closed Phillipsburg terminal and is no longer subject to monitoring.
Environmental Remediation
As is the case with all companies engaged in similar industries, we face potential exposure from future claims and lawsuits involving environmental matters, including soil and water contamination and personal injury or property damage allegedly caused by crude oil or hazardous substances that we manufactured,processed, handled, used, stored, transported, spilled, disposed of, or released. There is no assurance that we will not become involved in future proceedings related to the release of hazardous or extremely hazardous substances or crude oil for which we have potential liability or that, if we were held responsible for damages in any existing or future proceedings, such costs would be covered by insurance or would not be material.
Environmental Insurance
We are covered by a site pollution legal liability insurance policy. The policy includespolicies, which include business interruption coverage. The policy insurespolicies insure any location owned, leased, or rented, or operated by the Company, including the Refineries and the nitrogen fertilizer facilities. The policy insurespolicies insure certain pollution conditions at or migrating from a covered location, certain waste transportation and disposal activities, and business interruption.
In addition to the site pollution legal liability insurance policy, we maintain umbrella and excess casualty insurance policies which include sudden and accidental pollution coverage. This insurance provides coverage due to named perils for claims involving pollutants where the discharge is sudden and accidental and first commences at a specific day and time during the policy period.
The site pollution legal liability policy and the pollution coverage provided in the casualty insurance policies are subject to retentions and deductibles and contain discovery requirements, reporting requirements, exclusions, definitions, conditions, and
limitations that could apply to a particular pollution claim, and there can be no assurance such claim will be adequately insured for all potential damages.
Health, Safety and Security Matters
We are subject to a number of federal and state laws and regulations related to health and safety, including the Occupational Safety and Health Act (“OSHA”) and comparable state statutes, the purposepurposes of which are to protect the health and safety of workers. We also are subject to OSHA Process Safety Management regulations, which are designed to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals.
We operateare committed to safe, reliable operations of our facilities to protect the health and safety of our employees, our contractors, and the communities in which we operate. Our health and safety management system provides a comprehensive safety, healthapproach to injury, illness and security program, with participation by employees at all levels of the organization. We have developed comprehensive safety programs aimed at preventing OSHA recordable incidents.incident prevention, risk assessment and mitigation, and emergency management. Despite our efforts to achieve excellence in our safetyhealth and healthsafety performance, there can be no assurances that there will not be accidents resulting in injuries or even fatalities.
Our Refineries and the Coffeyville Fertilizer Facility are subject to the Chemical Facility Anti-terrorism Standards (“CFATS”), a regulatory program designed to ensure facilities have security measures in place to reduce the risk that certain hazardous chemicals are weaponized by terrorists. In addition, the East Dubuque Fertilizer Facility is regulated under the Maritime Transportation Security Act (“MTSA”). We implement and maintain comprehensive security programs designed to comply with regulatory requirements and protect our assets and employees.
We routinely auditassess risk and conduct audits of our programs and consider improvements inseek to continually improve our health, safety, and security management systems.
ReferHuman Capital
Core Values
At CVR Energy, our core Values define the way we do business every day. We put Safety first, care for our Environment, require high business ethics and Integrity consistent with our Code of Ethics and Business Conduct, are proud members of and good neighbors to the communities where we operate, and are committed to Corporate Citizenship. We believe in Continuous Improvement for individuals to achieve their maximum potential through teamwork, diversity and personal development. Our employees provide the energy behind our core Values to achieve excellence for all our key stakeholders – employees, communities and stockholders. See “Management’s Discussion and Analysis” in Part II, Item 8, Note 10 ("Commitments and Contingencies"), “Wynnewood Refinery Incident”7 of this Report for further discussion of OSHA.on our core Values.
Workforce & Benefits
Employees
As of December 31, 2018,2021, CVR Energy had 1,429 employees, all of which are located in the Company had approximately 1,450United States Of these, 598 employees including those employed by CVR Refining, CVR Partners, and the Company and its other subsidiaries corporate support functions. Our Petroleum Segment had approximately 950 employees at December 31, 2018 across both of its facilities and its logistics operations, including approximately 520 employeesare covered by collective bargaining agreements with various labor unions. We may engage independent contractors to provide flexibility for our business and operating needs.
We believe that expire on various dates rangingour future success largely depends upon our continued ability to attract and retain highly skilled employees. We are committed to providing wages and benefits that are competitive with a market-based, pay-for-performance compensation philosophy. We provide paid time off and paid holidays, a 401(k) Company match program, a remote work program for eligible employees, dependent care flexible spending accounts, and an employee assistance program. In furtherance of our core Value of continuous improvement, we also offer programs for tuition reimbursement and dependent scholarships. We also offer a remote work policy for eligible employees to provide our employees with the flexibility that is key to a work-life balance. We encourage all employees to live our core Value of corporate citizenship by making a positive impact in our communities by taking advantage of our volunteerism policy pursuant to which eligible employees are provided paid time off from March 2019work to June 2021. Our Nitrogen Fertilizer Segment had approximately 290 employeesvolunteer at 501(c)(3) non-profit entities.
Diversity
We are an equal opportunity employer and strive to maintain a diverse and inclusive work environment free from harassment and discrimination regardless of race, religion, color, age, gender, disability, minority, sexual orientation or any
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other protected class. Our commitment to diversity and inclusion helps us attract and retain the best talent, enables employees to realize their full potential, and drives high performance through innovation and collaboration. We offer diversity training that focuses on unconscious bias where employees learn to recognize and address the effects thereof by encouraging diversity of experience and opinion. Also, our Diversity & Inclusion Committee fosters innovative actions and promotes inclusiveness throughout our organization.
Health & Safety
We have an unwavering commitment to providing as safe and healthy of a workplace as possible for all employees. We accomplish this through strict compliance with applicable laws and regulations regarding workplace safety, engaging employee input, and maintaining robust training and emergency response and disaster recovery plans. We monitor and assess our safety performance by measuring and evaluating injuries, process safety incidents, environmental events, and other events, as well as by performing compliance audits and risk assessments. We believe these efforts reinforce our safety culture; promote a safe workplace, accountability, and stronger community relations; and reduce impact to personal safety, process safety, and the environment.
Our commitment to workplace safety was highlighted during the COVID-19 pandemic. Our leadership took immediate action aimed at maintaining a safe and healthy workplace for our employees and contractors, while continuing operations to meet the needs of our customers. Our cross-functional CVR Crisis Response Team was immediately activated, and we implemented a variety of policies and practices, including approximately 100 employees covered by collective bargaining agreements that expireour enhanced entry requirements and return to the workplace clearance policy. We provided masks, barriers, additional sanitation, and supplies in October 2019.all common areas and for employee personal use, implemented social distancing requirements and occupancy limits, and other protective measures. As the pandemic continues to evolve, our Crisis Response Team remains ready to respond quickly to protect our workforce.
Available Information
Our website address is www.cvrenergy.com.www.CVREnergy.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), are available free of charge through our website under “Investor Relations,” as soon as reasonably practicable after the electronic filing or furnishing of these reports is made with the Securities and Exchange Commission (the “SEC”) at www.sec.gov. In addition, our Corporate Governance Guidelines, Codes of Ethics and Business Conduct, and Charterscharters of the Audit Committee, the Nominating and Corporate Governance Committee, the Compensation Committee, and the CompensationEnvironmental, Health and Safety Committee of the Board of Directors are available on our website. These guidelines, policies, and charters are also available in print without charge to any stockholder requesting them. We do not intend for information contained inInformation on our website to beis not a part of, and is not incorporated into, this Report.Report or any other report we may file with or furnish to the SEC, whether before or after the date of this Report and irrespective of any general incorporation language therein.
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Item 1A. Risk Factors
Risk Factors
The following risks should be considered together with the other information contained in this Report and all of the information set forth in our filings with the SEC. If any of the following risks or uncertainties develops into actual events, our business,petroleum and/or nitrogen fertilizer businesses, financial conditionconditions, or results of operations could be materially adversely affected. References to CVR Energy, the Company, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Energy, including CVR Refining or CVR Partners, as the context may require.
Risks Related to Our Entire Business
The COVID-19 pandemic, and actions taken in response thereto, as well as certain developments in the global oil markets have had, and may continue to have, material adverse impacts on the operations, business, financial condition, liquidity, and results of operations of the Company or its customers, suppliers, and other counterparties.
The COVID-19 pandemic and actions of governments and others in response thereto has resulted in significant business and operational disruptions, including business closures, supply chain disruptions, travel restrictions, stay-at-home orders, and limitations on the availability and effectiveness of the workforce. The worldwide vaccine rollouts in 2021 have allowed governments to ease COVID-19 restrictions and lockdown protocols; however, the recent increase in COVID-19 cases resulting from the Delta and Omicron variants has created questions about whether lockdown protocols must be adjusted and the ultimate impact of those variants is unknown. The ongoing effects of the COVID-19 pandemic have negatively impacted and may continue to negatively impact worldwide economic and commercial activity, financial markets, and have caused volatility in demand for and prices of crude oil and other petroleum products. These impacts may also potentially precipitate a prolonged economic slowdown and recession. These declines have been further exacerbated by the production dispute between members of OPEC and Russia and the subsequent actions taken by such countries and other countries and crude oil producers as a result thereof.
Declines in the market prices of crude oil and certain other petroleum products below the carrying cost of such commodities in the Company’s inventory have required, and may continue to require, the Company to adjust the value of, and record a loss on, certain inventories, which has had, and may continue to have a negative impact on our operating income; adversely impact our ability to profitably operate our facilities, and our results of operations, such as revenues and cost of sales; could result in significant financial constraints on certain producers from which we acquire our crude oil; and could result in an increased risk that customers, lenders, and other counterparties may be unable to fulfill their obligations in a timely manner, or at all. Further, if general economic conditions continue to remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be harmed and the trading price of our common stock, which has seen recent volatility, may decline.
Our petroleum and nitrogen fertilizer businesses are, and commodity prices are, cyclical and highly volatile, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Our petroleum segment’sPetroleum Segment’s financial results are primarily affected by margin between refined product prices and the prices for crude oil and other feedstocks. Historically, refining margins have been volatile and vary by region, and we believe they will continue to be volatile in the future. Our cost to acquire feedstocks and the price at which we can ultimately sell refined products depend upon several factors beyond our control, including regional and global supply of and demand for crude oil, gasoline, diesel, and other feedstocks and refined products. These in turn depend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels of refined petroleum product inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with foreign governments, political affairs, and the extent of governmental regulation.
Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects on refining and marketing margins, which are uncertain. We do not produce crude oil and must purchase all of the crude oil we refine long before we refine themit and sell the refined products. Price level changes during the period between purchasing feedstocks and selling the refined petroleum products from these feedstocks could have a significant effect on our financial results. A decline in market prices may negatively impact the carrying value of our inventories. Price level changes during the period between purchasing feedstocks and selling the refined petroleum products from these feedstocks could have a significant effect on our financial results. A decline in market prices
may negatively impact the carrying value of our inventories. Our petroleum segmentPetroleum Segment profitability is also impacted by the ability to purchase crude oil at a discount to benchmark crude oils, such as WTI, as we do not produce any crude oil and must purchase all of the crude oil we refine.WTI. Crude oil differentials can fluctuate significantly based upon overall economic and crude oil market conditions. Adverse changes in crude oil differentials can adversely impact refining margins, earnings and cash flows. In addition, the petroleum segment’sPetroleum Segment’s purchases of crude oil, although based on WTI prices, have historically been at a discount to WTI because of the proximity of the refineriesRefineries to the sources, existing logistics infrastructure, and quality differences. Any change in the sources of crude oil, infrastructure or logistical improvements or quality differenceschanges to these factors could result in a reduction of the petroleum segment’s historical discount to WTI and may result in a reduction of the petroleum segment’sPetroleum Segment’s cost advantage.
Our nitrogen fertilizer businessNitrogen Fertilizer Segment is exposed to fluctuations in nitrogen fertilizer demand in the agricultural industry. These fluctuations historically have had and could in the future have significant effects on prices across all nitrogen fertilizer products and, in turn, our results of operations, financial condition and cash flows.
Nitrogen fertilizer products are commodities, the price of which can be highly volatile. The prices of nitrogen fertilizer products depend on a number of factors, including general economic conditions, cyclical trends in end-user markets, supply and demand imbalances, governmental policies, and weather conditions, which have a greater relevance because of the seasonal nature of fertilizer application. If seasonal demand exceeds the projections on which we base our production levels, customers may acquire nitrogen fertilizer products from competitors, and our profitability may be negatively impacted. If seasonal demand is less than expected, we may be left with excess inventory that will have to be stored or liquidated.
Demand for nitrogen fertilizer products is dependent on demand for crop nutrients by the global agricultural industry. The international market for nitrogen fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing nitrogen fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets, changes in the hard currency demands of certain countries, and other regulatory policies of foreign governments, as well as the laws and policies of the United StatesU.S. affecting foreign trade and investment. Nitrogen-based fertilizers remain solidly in demand, driven by a growing world population, changes in dietary habits and an expanded use of corn for the production of ethanol. Supply is affected by available capacity and operating rates, raw material costs, government policies, and global trade. A decrease in nitrogen fertilizer prices would have a material adverse effect on our nitrogen fertilizer business and cash flow, including CVR Partners’ ability to make distributions.
Additionally, volatile prices for natural gas and electricity affect both segments’ manufacturing and operating costs. Natural gas and electricity prices have been, and will continue to be, affected by supply and demand for fuel and utility services in both local and regional markets.
Petroleum and nitrogen fertilizer products are global commodities, and our businesses face intense competition from other refining and marketing companies and nitrogen fertilizer producers, which may have more resources and scale.competition.
The refining industry is highly competitive with respect to both crude oil and other feedstock supply and refined petroleum product markets. We compete with many companies for available supplies of crude oil and other feedstocks and for sites for our refined petroleum products. The petroleum segment isOur Petroleum Segment may be unable to compete effectively with competitors within and outside of the industry, which could result in reduced profitability. In contrast to many of our competitors, we do not engaged in the petroleum exploration and productionhave a retail business and therefore it doesare dependent upon others for outlets for our refined products, and we do not produce any of its crude oil feedstocks. Manyhave arrangements exceeding a twelve-month period for much of our competitors, however, obtain a significant portion of their feedstocks from company-owned productionpetroleum output and some have extensive retail sites. Such competitors are at times able tothus cannot offset losses from refining operations with profits from producing or retailingretail operations and may be better positionedless able to withstand periods of depressed refining margins or feedstock shortages. Some of our competitors also have materially greater financial and other resources than we have. Such competitors haveus and a greater ability to bear the economic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial, and individual consumers.
The refining industry is highly competitive with respect to both crude oil and other feedstock supply and refined product markets. Our petroleum business may be unable to compete effectively with competitors within and outside of the industry, which could result in reduced profitability. We compete with numerous other companies for available supplies of crude oil and other feedstocks and for outlets for refined products. We do not have a retail business and therefore are dependent upon others for outlets for our refined products. We do not have arrangements exceeding more than a twelve-month period for much of our petroleum output. Many of our competitors obtain significant portions of their crude oil and other feedstocks from company-owned production and have extensive retail outlets. Competitors that have their own production or extensive retail outlets with brand-name recognition are at times able to offset losses from refining operations with profits from producing or retailing operations and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.
A number of the petroleum segment’s competitors are integrated, multinational companies and also have materially greater financial and other resources. These competitors may have a greater ability to bear the economic risks inherent in all aspects of the refining industry. An expansion or upgrade of our competitors’ facilities, price volatility, international political and economic developments and other factors are likely to continue to play an important role in refining industry economics and may add additional competitive pressure on our petroleum business. Because of the diversity, integration of operations, larger capitalization, larger and more complex refineries and greater resources of multinational oil companies, these companies may be better able to withstand volatile market conditions relating to crude oil and refined product pricing, to compete on the basis of price and to obtain crude oil in times of shortage.
In addition, our petroleum businessPetroleum Segment competes with other industries that provide alternative means to satisfy the energy and fuel requirements of its industrial, commercial, and individual customers. There are presently significant governmental incentives and consumer pressures to increase the use of alternative fuels in the United States. The more successful these alternatives become as a result of governmental incentives or regulations, technological advances, consumer demand, improved pricing, or otherwise, the greater the negative impact on pricing and demand for our products and profitability.
Our nitrogen fertilizer businessNitrogen Fertilizer Segment is subject to intense price competition from both U.S. and foreign sources, including competitors operating in the Middle East, the Asia-Pacific region, the Caribbean, Russia and the Ukraine. Fertilizers are global commodities, withsources. With little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price and availability of the product. Increased global supply or decreases in transportation costs for foreign sources of fertilizer may put downward pressure on fertilizer prices. Furthermore, in recent years the price of nitrogen fertilizer in the United States has been substantially driven by pricing in the global fertilizer market. We compete with a number of U.S. producers and producers in other countries, including state-owned and government-subsidized entities. Some competitorsentities that have greater total resources and are less dependent on earnings from fertilizer sales, which make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Additionally, our competitors utilizing different corporate structuresIn addition, imports of fertilizer from other countries may be better ableunfairly subsidized, as was found to withstand lower cash flows than we can as a limited partnership. Our competitive position could sufferbe the case on November 30, 2021 by the U.S. Department of Commerce (the “USDOC”) with respect to the extent we are unable to expand resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships.UAN imports from Russia and Trinidad. An inability to compete successfully could result in a loss of customers, which could adversely affect our sales, profitability, and cash flows, and therefore, have a material adverse effect on our results of operations, financial condition and cash flows.condition.
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Our businesses are geographically concentrated, and are therefore subjectcreating exposure to regional economic downturns and seasonal variations, which may affect our production levels, transportation costs, and inventory and working capital levels.
Our Refineries are both located in the southern portion of Group 3 of the PADD II region, and we primarily market refined products in a relatively limited geographic area. As a result, our petroleum businessPetroleum Segment is more susceptible to regional economic conditions than the operations of more geographically diversified competitors, and any unforeseen events or circumstances that affect itsour operating area could also materially adversely affect itsour revenues and cash flows. These factors include, among other things, changes in the economy, weather conditions, demographics and population, increased supply of refined products from competitors, and reductions in the supply of crude oil. In addition, if we deliver refined products to customers outside of the region, we may incur considerably higher transportation costs, resulting in lower refining margins, if any.
Our nitrogen fertilizer segment’sNitrogen Fertilizer Segment’s sales to agricultural customers are concentrated in the Great Plains and Midwest states, and nitrogen fertilizer demand is seasonal. Our quarterly results may vary significantly from one year to the next due largely to weather-related shifts in planting schedules and purchase patterns. Farmers tend to apply nitrogen fertilizerBecause we build inventory during two short application periods, one in the spring and the other in the fall. In contrast, we along with other nitrogen fertilizer producers generally produce products throughout the year. As a result, we and our customers generally build inventories during the low demand periods, of the year to ensure timely product availability during peak sales seasons. Variations in the proportion of product sold through prepaid sales contracts and variations in the terms of such contracts can increase the seasonal volatility of our cash flows and cause changes in the patterns of seasonal volatility from year-to-year. Additionally, the accumulation of inventory to be available for seasonal sales creates significant seasonal working capital and storage capacity requirements. The degree of seasonality can change significantly from year to yearyear-to-year due to conditions in the agricultural industry and other factors. As a consequence of this seasonality, distributions by our Nitrogen Fertilizer Segment of available cash, if any, may be volatile and may vary quarterly and annually.
Both the petroleumPetroleum and nitrogen fertilizer businessesNitrogen Fertilizer Segments depend on significant customers, and the loss of several significant customerswhich may have a material adverse impact on our results of operations, financial condition and cash flows.
The petroleumPetroleum and nitrogen fertilizer businessesNitrogen Fertilizer Segments both have a significant concentration of customers. The five largest customerscustomer of our petroleum businessPetroleum Segment represented 38% of its petroleum net sales for the year ended December 31, 2018. The five largest customers of the nitrogen fertilizer business also represented approximately 32%16% of its net sales for the year ended December 31, 2018.2021. The top petroleumlargest customer accounts forof the Nitrogen Fertilizer Segment represented approximately 15%13% of petroleum net sales and the top nitrogen fertilizer customer accounts for approximately 14% of nitrogen fertilizerits net sales for thisthe same period. Given the nature of our businesses, and consistent with industry practice, we do not have long-term minimum purchase contracts with our customers. The loss of severalone or more of these significant customers, or a significant reduction in purchase volume by severalany of them, could have a material adverse effect on our results of operations, financial condition and cash flows.
If licensed technology were no longer available, our business may be adversely affected.
We have licensed, and may in the future license, a combination of patent, trade secret, and other intellectual property rights of third parties for use in our plant operations. If our use of technology on which our operations rely were to be terminated or face infringement claims, licenses to alternative technology may not be available, may only be available on terms that are not commercially reasonable or acceptable, or in the case of infringement may result in substantial costs, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Compliance with and changes in environmental laws and regulations, including those related to climate change, could require us to make substantial capital expenditures and adversely affect our performance.
Our operations are subject to extensive federal, state, and local environmental laws and regulations relating to the protection of the environment, including those governing the emission or discharge of pollutants into the environment, product use and specifications, and the generation, treatment, storage, transportation, disposal, and remediation of solid and hazardous wastes.
For example, the U.S. Environmental Protection Agency (“EPA”) has promulgated and implements a Renewable Fuel Standard (“RFS”) pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. Under the RFS program, a Renewable Identification Number (“RIN”) is assigned to each gallon of renewable fuel produced in or imported into the U.S. The RFS program sets annual mandates for the volume of renewable fuels (such as ethanol and biodiesel) that must be blended into a refiner’s transportation fuels. If a refiner of petroleum-based transportation fuels is unable to meet its renewable fuel mandate though blending, it must purchase RINs in the open market to meet its obligations under the RFS program. Our petroleum business is exposed to the volatility in the market price of RINs, which can be extreme.
Violations of applicable environmental laws and regulations or of the conditions of permits issued thereunder can result in substantial penalties, injunctive orders compelling installation of additional controls or other injunctive relief, civil and criminal sanctions, operating restrictions, injunctive relief, permit revocations, and/or facility shutdowns, which may have a material adverse effect on our ability to operate our facilities and accordingly our financial performance. Capital expenditures and operating costs for current and future environmental compliance may be substantial and could have a material adverse effect on our segments’ results of operations, financial condition and profitability.
In addition, new environmental laws and regulations, new interpretations of existing laws and regulations, or increased governmental enforcement of laws and regulations, or other developments could require us to make additional unforeseen expenditures. TheseIt is unclear the impact of the new federal administration will have on the laws and regulations are generally expectedapplicable to impose increasingly stringent, and costly requirements over time. Various legislative and regulatoryus, however, measures to address climate change and reduce GHG emissions (including carbon dioxide, methane, and nitrous oxides) are in various phases of discussion or implementation and could affect our operations. They include proposed and enacted federal regulation and state actions to develop statewide, regional or nationwide programs designed to control and reduce GHG emissions from fixed sources, such as our refineries and fertilizer plants. Many states and regions have implemented, or are in the process of implementing, measures to reduce emissions of GHGs, but other than Kansas, we do not currently operate in states that have their own GHG reduction programs. In 2007, a group of Midwestern states, including Kansas (where the Coffeyville Refinery and Coffeyville Fertilizer Facility are located), formed the Midwestern Greenhouse Gas Reduction Accord, which calls for the development of a cap-and-trade system to control GHG emissions and for the inventory of such emissions. However, the individual states that have signed on to the accord must adopt laws or regulations that implement the trading scheme before it becomes effective. To date, Kansas has taken no meaningful action to implement the accord, and it is unclear whether Kansas intends to do so in the future.
Although it is not possible to predict the requirements of any GHG legislation that may be enacted, any laws or regulations that have been or may be adopted to restrict or reduce GHG emissions will likely require us to incuroperations by requiring increased operating and capital costs and/or increasedincreasing taxes on GHG emissions,emissions. There is also increased agency interest in polyfluoroalkyl substances or PFAS. On October 18, 2021, the U.S. Environmental Protection Agency (the “EPA”) announced that the agency intends to designate at least two PFAS compounds as hazardous substances by 2023, with a proposed rule expected in the spring of 2022. If PFAS
compounds are designated as hazardous substances, the EPA could have the ability to order the investigation and result in reduced demand for our fertilizer products.remediation of those compounds at the EPA clean-up sites. The EPA could also have the authority to reopen closed sites which are shown to be impacted by these PFAS compounds. This could lead to increased monitoring obligations and potential liability related thereto. If we are unable to maintain sales of our products at a price that reflects such increased costs, or could result in reduced demand for our fertilizer and hydrocarbon products, there could be a material adverse effect on our business, financial condition and results of operations. Further, any increase in the prices of our products resulting from such increased costs could have a material adverse effect on our operations, financial condition and cash flows.
In addition, climate change legislation and regulations may result in increased costs not only for us but also users of our fertilizer products, thereby potentially decreasing demand for our products. Further, changes in environmental laws and regulations or their interpretation relating to the end-use and application of fertilizers could cause changes in demand for our products or limit our ability market and sell products to end users. From time to time, various state legislatures have proposed bans or other limitations on fertilizer products. Decreased demand for our products may have a material adverse effect on our results of operations, financial condition and cash flows.
Our facilities face significant risks due to physical damage hazards, environmental liability risk exposure, and unplanned or emergency partial or total plant shutdowns resulting in business interruptions. Wewhich could incur potentially significant costs to the extent there are unforeseen events which cause property damage and a material decline in production which are not fully insured. The commercial insurance industry engaged in underwriting energy industry risk is specialized and there is finite capacity; therefore, the industry may limit or curtail coverage, may modify the coverage provided or may substantially increase premiums in the future.
If any of our facilities, logistics assets, or key suppliers sustainssustain a catastrophic loss and operations are shutdown or significantly impaired, it would have a material adverse impact on our operations, financial condition and cash flows. In addition, the risk exposures we have at the Coffeyville, Kansas plant complex are greater due to production facilities for petroleum and nitrogen fertilizer, distribution and storage being in relatively close proximity and potentially exposed to damage from one incident, such as resulting damages from the perilsExamples of explosion, windstorm, fire or flood. Operations at either or both of the plants could be curtailed, limited or completely shut down for an extended period of time as the result of one or more unforeseen events and circumstances, which may not be within our control, including:
include: (i) major unplanned maintenance requirements;
(ii) catastrophic events caused by mechanical breakdown, electrical injury, pressure vessel rupture, explosion, contamination, fire, or natural disasters, including floods, windstorms, and other similar events;
(iii) labor supply shortages or labor difficulties that result in a work stoppage or slowdown;
(iv) cessation or suspension of a plant or specific operations dictated by environmental authorities; (v) acts of terrorism or other deliberate malicious acts; and
(vi) an event or incident involving a large clean-up, decontamination, or the imposition of laws and ordinances regulating the cost and schedule of demolition or reconstruction, which can cause significant delays in restoring property to its pre-loss condition.
We have sustained losses over the past ten-year period at our facilities, which are illustrative of the types of risks and hazards that exist. These losses or events resulted in costs assumed by us that were not fully insured due to policy retentions or applicable exclusions. We are insured under casualty, environmental, property, and business interruption insurance policies. The property and business interruption policies insure our real and personal property, including property located at our plants.property. These policies are subject to limits, sub-limits, retention (financial and time-based), and deductibles. The application of these and other policy conditions could materially impact insurance recoveries and potentially cause us to assume losses which could impair earnings. There is potential for a common occurrence to impact both our Coffeyville Refinery and Coffeyville Fertilizer Facility, in which case the insurance limits and applicable sub-limits would apply to all damages combined. These policies are subject to limits, sub-limits, retention (financial and time-based) and deductibles. The application of these and other policy conditions could materially impact insurance recoveries and potentially cause us to assume losses which could impair earnings.
There is finite capacity in the commercial insurance industry engaged in underwriting energy industry risk, and there are risks associated with the commercial insurance industry reducing capacity, changing the scope of insurance coverage offered, and substantially increasing premiums resulting from highly adverse loss experience or other financial circumstances. Factors that impact insurancefactors impacting cost and availability include, but are not limited to: industry wideinclude: (i) losses in our industries, (ii) natural disasters, (iii) specific losses incurred by us, and low or(iv) inadequate investment returns earned by the insurance industry. If the supply of commercial insurance is curtailed, due to highly adverse financial results, we may not be able to continue our present limits of insurance coverage or obtain sufficient insurance capacity to adequately insure our risks for property damage or business interruption.risks.
We could incur significant costs in cleaning up contamination at our refineries, terminals, fertilizer plants and off-site locations.facilities.
Our businesses handle petroleum and hazardous substances, which mayand as a result, in accidental spills, discharges, or other releases of petroleum or hazardous substances into the environment.environment may occur. Past or future spills related to any of our current or former operations including refineries, pipelines, product terminals, and fertilizer plants, or transportation of productssolid or hazardous substances from those facilities,waste disposal may give rise to liability (including for personal injury and property damage, penalties, strict liability or liability without fault, and potential cleanup responsibility) to governmental entities or private parties under federal, state, or local environmental laws, as well as under common law. For example, we could be held strictly liable under CERCLA and similar state statutes for past or future spills without regard to fault or whether our actions were in compliance with the law at the time of the spills. Pursuant to CERCLA and similar state statutes, we could be held liable forspills, including in connection with contamination associated with facilities we currently own or operate (whether such contamination occurred prior to or during our ownership),current and former facilities, we formerly owned or operated and facilities to which we transported or arranged for the transportation of wastes or byproducts containing hazardous substances for treatment, storage, or disposal.
The potential penalties and cleanup costs for past or future releases or spills, Such liability to third parties for damage to their property or exposure to hazardous substances, or the need to address newly discovered information or conditions that may require response actions could be significant and could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, weflows and may incur liability for alleged personal injury or property damage duenot be covered by insurance.
Remedial activities to exposure to chemicals or other hazardous substances locatedaddress known environmental contamination are underway at or released from our facilities. We may also face liability for personal injury, property damage, natural resource damage or for cleanup costs for the alleged migration of contamination or other hazardous substances from our facilities to adjacent and other nearby properties.
Fourthree of our facilities, including the Coffeyville Refinery, the now-closed Phillipsburg terminal (which operated as a refinery until 1991), and the Wynnewood Refinery and the Coffeyville Fertilizer Facility, have known environmental contamination.Refinery. We also have assumed the previous owner’s responsibilities under certain administrative orders under RCRA related to contamination at or that originated from the Coffeyville Refinery and the Phillipsburg terminal. If significant unknown contamination is identified at or migrating from any of our facilities,We continue to work with the associated liability could have a material adverse effect on our results of operations, financial condition and cash flows and may not be covered by insurance.
We may incur future liability relatingapplicable governmental authorities to the off-site disposal of hazardous waste from our facilities. Companies that dispose of, or arrange for the treatment, transportation or disposal of, hazardous substances at off-site locations may be held jointly and severally liable for the costs of investigation andimplement remediation of contamination at those off-site locations, regardlessthese three sites on a timely basis. As of fault. We could become involved in litigation or other proceedings involving off-site waste disposal and the damages or costs in any such proceedings could be material.
December 31, 20182021, we have established an accrual of approximately $12 million for probable and reasonably estimable obligations associated with these sites.
New regulationsRegulations concerning the transportation, storage, and handling of hazardous chemicals and materials, risks of terrorism, and the security of refineries and chemical manufacturing facilities could result in higher operating costs.
Our crude oil gathering division that operates as a motor carrier is subject to regulation by federal and various state agencies and possible regulatory and legislative changes that may affect the economics of the industry. Some of these possible changes include increasingly stringent fuel-economy environmental regulations, limits on vehicle weight and size, and increases to federal, state or local taxes, including taxes on motor fuels, which may increase our costs or adversely impact the recruitment of drivers.
Critical infrastructure such as petroleum refining and chemical manufacturing facilities may be at greater risk of terrorist attacks than other businesses in the United States. As a result, the petroleum and chemical industries are subject to security regulations relating to physical and cyber security. The costs of complying with future regulations relating to the transportation, storage and handling of hazardous chemicals and security associated with the refining and nitrogen fertilizer facilitiescompliance therewith may have a material adverse effect on our results of operations, financial condition and cash flows. Targets such as refining
If our access to transportation on which we rely for the supply of our feedstocks and chemical manufacturing facilitiesthe distribution of our products is interrupted, our inventory and costs may increase and we may be at greater riskunable to efficiently distribute our products.
If one of future terrorist attacks thanthe pipelines on which either of the Refineries relies for supply of crude oil or for distribution of fuel becomes inoperative, the Petroleum Segment would be required to use alternative pipelines or other targetstransportation methods or increase inventory, which could increase its costs and result in the United States. As a result, the petroleumlower production levels and chemical industries have respondedprofitability. Our Nitrogen Fertilizer business relies on railroad, trucking and barge companies to the issues that arose dueship finished products to the terrorist attacks on September 11, 2001 by starting new initiatives relating to the security of petroleum and chemical industry facilities and the transportation of hazardous chemicals in the United States. Future terrorist attacks could lead to even stronger, more costly initiativescustomers. Factors that could result innegatively impact transportation availability and have a material adverse effect on our results of operations, financial condition and ability to make cash flows.distributions include extreme weather conditions, work stoppages, delays, spills, and derailments, new regulations restricting movements or increasing costs. The limited number of companies available for ammonia transport may also impact the availability of transportation for our Nitrogen Fertilizer Segment’s products.
We may be unable to obtain or renew permits or approvals necessary for our operations, which could inhibit our ability to do business.
Our businesses hold numerous environmental and other governmental permits and approvals authorizing operations at our facilities. Futurefacilities and future expansion of our operations is predicated upon securing the necessary environmental or other permits or approvals.ability to secure approvals therefore. A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations and on our financial condition, results of operations and cash flows.
We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and profitability.
We are subject to the requirements of OSHA and comparable state statutes that regulate the protection of the health and safety of workers, and the proper design, operation, and maintenance of our equipment. In addition, OSHAequipment, and certain environmental regulations require that we maintainus to provide information about hazardous materials used or produced in our operations and that we provide this information to employees and state and local governmental authorities.operations. Failure to comply with these requirements including general industry standards, record keeping requirements and monitoring and control of occupational exposure to regulated substances, may result in significant fines or compliance costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.
A significant portion of our workforce is unionized, and we are subject to the risk of labor disputes, and adverse employee relations, which may disrupt our business and increase our costs.
As of December 31, 2018,2021, approximately 55%53% and 34%31% of our petroleum and nitrogen fertilizer employees, respectively, were represented by labor unions under collective bargaining agreements. We may not be able to renegotiate our collective bargaining agreements when they expire on satisfactory terms or at all. A failure to do so may increase our costs. In addition, our existing labor agreements may not prevent a strike or work stoppage at any of our facilities in the future, and any work stoppage could negatively affect our results of operations, financial condition and cash flows.
We are subject to cybersecurity risks and other cyber incidents resulting in disruption.
Threats toWe depend on internal and third-party information technology systems associated with cybersecurity risksto manage and cyber incidents or attacks continue to grow. We depend on information technology systems. In addition,support our operations, and we collect, process, and retain sensitive and confidential customer information in the normal course of business. Despite the security measuresTo protect our facilities
and systems against and mitigate cyber risk, we have implemented several programs including externally performed cyber risk monitoring, audits and penetration testing and an information security training program, and we are actively engaged in placeevaluating the implementation of applicable Cybersecurity and any additionalInfrastructure Security Agency security standard guidelines. On an as needed basis, but no less than quarterly, we brief the Audit Committee of the Board on information security matters. Despite these measures (or those we may implement in the future,future), our facilities and these systems and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Any disruption of ourthese systems or security breach or event resulting in the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us directly or our third-party service providers, could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise affect our results of operations. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities for us. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
Deliberate, malicious acts, including terrorism, could damage our facilities, disrupt our operations or injure employees, contractors, customers or the public and result in liability to us.
Intentional acts of destruction could hinder our sales or production and disrupt our supply chain. Our facilities could be damaged or destroyed, reducing our operational production capacity and requiring us to repair or replace our facilities at substantial cost. Employees, contractors and the public could suffer substantial physical injury for which we could be liable. Governmental authorities may impose security or other requirements that could make our operations more difficult or costly. The consequences of any such actions could adversely affect our operating results, financial condition and cash flows.
The acquisition and expansion strategy of our businesses involves significant risks.
From time to time, we may consider pursuing acquisitions and expansion projects to continue to grow and increase profitability. However, we may not be able to consummate such acquisitions or expansions, due to intense competition for suitable acquisition targets, the potential unavailability of financial resources necessary to consummate acquisitions and expansions, difficulties in identifying suitable acquisition targets and expansion projects or in completing any transactions identified on sufficiently favorable terms and the failure to obtain requisite regulatory or other governmental approvals. In addition, any future acquisitions and expansions may entail significant transaction costs and risks associated with entry into new markets and lines of business, including but not limited to new regulatory obligations and risks.
Even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as
Unforeseen difficulties in the integration of the acquired operations and disruption of the ongoing operations of our business;
Failure to achieve cost savings or other financial or operating objectives contributing to the accretive nature of an acquisition;
Strain on the operational and managerial controls and procedures and the need to modify systems or to add management resources;
Difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies;
Assumption of unknown material liabilities or regulatory non-compliance issues;
Amortization of acquired assets, which would reduce future reported earnings;
Possible adverse short-term effects on our cash flows or operating results; and
Diversion of management’s attention from the ongoing operations of our business.
In addition, in connection with any potential acquisition or expansion project specific to CVR Partners (our nitrogen fertilizer segment), we will need to consider whether a business we intend to acquire or expansion project we intend to pursue could affect CVR Partners’ tax treatment as a partnership for federal income tax purposes. If CVR Partners is otherwise unable to conclude that the activities of the business being acquired or the expansion project would not affect its treatment as a partnership for federal income tax purposes, it may elect to seek a ruling from the Internal Revenue Service (“IRS”). Seeking such a ruling could be costly or, in the case of competitive acquisitions, place the business in a competitive disadvantage compared to other potential acquirers who do not seek such a ruling. If CVR Partners is otherwise unable to conclude that an activity would not affect its treatment as a partnership for federal income tax purposes, and are unable or unwilling to obtain an IRS ruling, we may choose to acquire such business or develop such expansion project in a corporate subsidiary of CVR Partners, which would subject the income related to such activity to entity-level taxation, which would reduce the amount of cash available for distribution to CVR Partners’ common unitholders and could likely cause a substantial reduction in the value of its common units.
Failure to manage these acquisition and expansion growth risks could have a material adverse effect on our results of operations, financial condition and cash flows. Our joint ventures involve similar risks. There can be no assurance that we will be able to consummate any acquisitions or expansions, successfully integrate acquired entities, or generate positive cash flow at any acquired company or expansion project.
Risks Related to the Petroleum Segment
If our petroleum businessPetroleum Segment is required to obtain its crude oil supply without the benefit of a crude oil supply agreement itsand significant crude oil gathering in the regions in which we operate, our exposure to the risks associated with volatile crude oil prices may increase, crude oil transportation costs could increase and itsour liquidity may be reduced.
Our petroleum businessPetroleum Segment obtains substantially all of its crude oil supply for the Coffeyville Refinery, other thanthrough crude oil gathering operations in Kansas and Oklahoma or through the crude oil it gathers, through theintermediation agreement with Vitol Agreement. The Vitol Agreement also includes the provision of crude oil intermediation services to the Wynnewood Refinery.Inc. The agreement, which currently extends through December 31, 2019,2022, minimizes the amount of in-transit inventory and mitigates crude oil pricing risk by ensuring pricing takes place close to the time the crude oil is refined and the yielded products are sold. If we were required to obtain our crude oil supply without the benefit of crude oil located near the Refineries or through a supply intermediation agreement, our petroleum business’Petroleum Segment’s exposure to crude oil pricing risk may increase, despite any hedging activity in which it may engage, crude oil transportation costs could increase and itsour liquidity could be negatively impacted due to increased inventory, potential need to post letters of credit, and negative impacts of market volatility. There is no assurance that our crude oil gathering operations will remain at current levels or that we will be able to renew or extend the Vitol Agreementagreement beyond December 31, 2019.
Disruption of the petroleum segment’s ability to obtain an adequate supply of crude2022. Crude oil could reduce its liquidity and increase its costs.
In addition to the crude oil gathered and purchased primarily in in Kansas, Oklahoma, and Texas, our petroleum business also purchases domestic and international crude oil under the Vitol Agreement. In 2018, the Coffeyville Refinery purchased approximately 75,000 to 80,000 bpd of such crude oil, while the Wynnewood Refinery purchased approximately 5,000 to 10,000 bpd of such crude oil. The Wynnewood Refinery has historically acquired most of its crude oil from our gathering operations in Oklahoma and Texas, with smaller amounts purchased from other regions. In 2018, the Coffeyville Refinery obtained approximately 6% of its non-gathered crude oil from Canada. The actual amount of Canadian crude oil we purchase is dependent on market conditions and will vary from year to year. Disruption of production for any reasondisruptions could have a material impact on the petroleum segment. In thePetroleum Segment because in such an event, that one or more of its traditional suppliers becomes unavailable, we may be unable to obtain an adequate supply of crude oil, or we may only be able to obtain crude oil at unfavorable prices. As a result,prices and we may experience a reduction in liquidity and our results of operations could be materially adversely affected.
If our access to the pipelines on which the petroleum segment relies for the supply of its crude oil and the distribution of its products is interrupted, its inventory and costs may increase and it may be unable to efficiently distribute its products.
If one of the pipelines on which either of the Refineries relies for supply of crude oil becomes inoperative, the petroleum segment would be required to obtain crude oil through alternative pipelines or from additional tanker trucks, which could increase its costs and result in lower production levels and profitability. Similarly, if a major refined fuels pipeline becomes inoperative, we would be required to keep refined fuels in inventory or supply refined fuels to its customers through an alternative pipeline or by additional tanker trucks, which could increase the petroleum segment’s costs and result in a decline in profitability.
Compliance with the U.S. Environmental Protection Agency Renewable Fuel Standard could adversely affect our performance.
We areThe U.S. Environmental Protection Agency (“EPA”) has promulgated and implemented the RFS pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. Under the RFS program, a RIN is assigned to each gallon of renewable fuel produced in or imported into the United States. The RFS program sets annual mandates for the volume of renewable fuels (such as ethanol and biodiesel) that must be blended into a refiner’s transportation fuels. If a refiner of petroleum-based transportation fuels is unable to meet its renewable fuel mandate through blending and is not otherwise exempt from compliance, it must purchase RINs in the open market to meet its obligations under the RFS program.
Our Petroleum Segment is exposed to the volatility in the market price of RINs, which can be extreme. We cannot predict the future prices of RINs. RIN prices are dependent upon a variety of factors, including EPA regulations, the availability of RINs for purchase, and levels of transportation fuels produced, the mix of the petroleum business’ petroleum products, as well as the fuel blending performed at the Refineries and downstream terminals, all of which can vary significantly from period to period. However,RIN prices may also be impacted by the costs to obtain the necessary number of RINstiming and waiver credits could be material, if the price for RINs continues to increase. Additionally, because the petroleum business does not produce renewable fuels, increasing the volume of renewable fuels that must be blended into its products displaces an increasing volumecontent of the Refineries' product pool, potentially resulting in lower earningsEPA’s actions relating to the RFS and materially adversely affectingcommunications relating thereto, as well as the petroleum business’ cash flows. If the demand for the petroleum business’ transportation fuel decreasesactions of market participants, such as a result of the use of increasing volumes of renewable fuels, increased fuel economy as a result of new EPA fuel economy standards, or other factors, the impact on its business could be material.non-obligated parties. If sufficient RINs are unavailable for purchase, if the petroleum businessPetroleum Segment has to pay a significantly higher price for RINs, or if the petroleum businessPetroleum Segment is otherwise unable to meet the EPA'sEPA’s RFS mandates or is unable to participate in programs or receive exemptions relieving compliance with RFS obligations, our business, financial condition and results of operations could be materially adversely affected. For the years ended December 31, 2018, 2017 and 2016, we recognized expense totaling $60 million, $249 million and $206 million, respectively, to comply with RFS. Based upon recent market prices of RINs and current estimates related to the other variable factors, our estimated cost to comply with RFS is $80 to $90 million for 2019.
Changes in the petroleum business’our credit profile may affect itsour relationship with itsour suppliers, which could have a material adverse effect on our liquidity and ability to operate the Refineries at full capacity.
Changes in the petroleum business’our credit profile may affect the way crude oil suppliers view our ability to make payments and may induce them to shorten the payment terms for purchases or require itus to post security prior to payment.security. Given the large dollar amounts and volume of our crude oil and other feedstock purchases, a burdensome change in payment terms may have a material adverse effect on
liquidity and our ability to make payments to suppliers. This, in turn, could cause us to be unable to operate the Refineries at full capacity. A failure to operate at full capacity could adversely affect our profitability and cash flows.
The petroleum business’Petroleum Segment’s commodity derivative contracts may limit potential gains, exacerbate potential losses, and involve other risks.
We may enter into commodity derivatives contracts to mitigate crack spread risk with respect to a portion of expected refined products production. However, hedging arrangements, if we are able to procure them, may fail to fully achieve this objective for a variety of reasons, including its failure to have adequate hedging contracts, if any, in effect at any particular time and the failure of hedging arrangements to produce the anticipated results. Moreover, such transactions may limit our ability to benefit from favorable changes in margins. In addition, our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which:
which the volumes of itsour actual use of crude oil or production of the applicable refined products is less than the volumes subject to the hedging arrangement;
accidents, interruptions in transportation, inclement weather, or other events cause unscheduled shutdowns or otherwise adversely affect a refinery, or suppliers, or customers;
the counterparties to itsour futures contracts fail to perform under the contracts; or
a sudden, unexpected event materially impacts the commodity or crack spread subject to the hedging arrangement.
As a result, the effectiveness of our risk mitigation strategy could have a material adverse impact on our financial results and cash flows.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") is comprehensive financial reform legislation that, among other things, establishes comprehensive federal oversight and regulation of over-the-counter derivatives and many of the entities that participate in that market. While some of the rules and regulations under Dodd-Frank Act have been finalized, others have not. As a result, the final form and timing of the implementation of the new regulatory regime affecting commodity derivatives remains uncertain. If we reduces our use of derivatives as a result of the Dodd-Frank Act and any new rules and regulations, our results of operations may become more volatile and cash flows may be less predictable, which could adversely affect our ability to satisfy its debt obligations or plan for and fund capital expenditures. Increased volatility may make us less attractive to certain types of investors. Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices. If the Dodd-Frank Act and any new regulations result in lower commodity prices, our petroleum business’ revenues could be adversely affected. Any of these consequences could adversely affect our financial condition and results of operations and therefore could have an adverse effect on our ability to satisfy debt obligations.
Additionally, since we do not apply hedge accounting to its commodity derivative contracts, gains and losses are charged to its earnings based on the increase or decrease in the market value of derivative positions. Such gains and losses are reflected in its income statement in periods that differ from when the underlying hedged items (i.e., gross margins) are reflected in our income statement. Such derivative gains or losses in earnings may produce significant period-to-period earnings volatility that is not necessarily reflective of our petroleum business’ operational performance.
We must make substantial capital expenditures on the Refineries and other facilities to maintain their reliability and efficiency. If we are unable to complete capital projects at their expected costs and/or in a timely manner, or if the market conditions assumed in project economics deteriorate, our financial condition, results of operations or cash flows could be adversely affected.
Our Refineries have been in operation for many years. Equipment, even ifwhen properly maintained, may require significant capital expenditures and expenses to keep operating at optimum efficiency. These refineries generally require facilityOur facilities and equipment have been in operation for many years and may be subject to unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our planned turnaround every fourfor facilities and equipment. In addition, our planned turnarounds for facilities and equipment reduce our revenues during the period of time that such assets are not operating and may take longer than anticipated to five years.complete. Delays or cost increases beyond our control related to the engineering procurement and construction of new facilities or improvements and repairs to existing facilities and equipment could have a material adverse effect on our financial condition, resultscaused by delays in or denials of operations or cash flows. Such delays or cost increases may arise as a result of unpredictable factors in the marketplace, many of which are beyond our control, including:
denial or delay in obtaining regulatory approvals and/or permits;
unplanned increases in the cost of equipment, materials or labor;
permits, disruptions into transportation, of equipment and materials;
severe adverse weather conditions, natural disasters or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors and suppliers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
market-relatedstoppage, non-performance of vendors, or increases in a project’s debt or equity financing costs; and/or
non-performance or force majeure by, or disputes with, the petroleum segment’s vendors, suppliers, contractors or sub-contractors.
Any one or more of these occurrences noted abovecosts, could have a significant impact on our petroleum business. If we are unable to make up for the delays or to recover the related costs, or if market conditions change, we could materially and adversely affect our financial condition, results of operations or cash flows.
One of the ways we may grow our business is through the conversion or expansion of our existing facilities, such as the conversion of the Wynnewood Refinery’s hydrocracker to an RDU and the conversion of a hydrotreater to renewable diesel service at the Coffeyville Refinery. If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities could subject us to fines or penalties and also affect our ability to supply certain products we make. Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel in a region in which such growth does not materialize, and our revenue may not increase immediately upon the expend of funds on a particular project. In addition, the long-term success of our Petroleum Segment depends on our ability to effectively address energy transition matters, which will require that we continue to adapt our existing facilities to potentially changing government requirements, among other things. As a result, new capital investments may not achieve our expected investment return, which could materially and adversely affect our financial position, results of operations or cash flows.
More stringent trucking regulations may increaseInvestor and market sentiment towards climate change, fossil fuels, GHG emissions, environmental justice, and other Environmental, Social and Governance (“ESG”) matters could adversely affect our petroleum business’ costsbusiness, cost of capital, and negatively impact resultsthe price of operations.our common stock and debt securities.
In connectionThere have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities, and other groups, to promote the divestment of securities of companies in the energy industry, as well as to pressure lenders and other financial services companies to limit or curtail activities with companies in the trucking operations conducted by our crude gathering division, our petroleum business operates asenergy industry. As a motor carrierresult, some financial intermediaries, investors, and therefore is subjectother capital markets participants have reduced or ceased lending to, regulation by federal and various state agencies. These regulatory authorities exercise broad powers, governing activitiesor investing in, companies that operate in industries with higher perceived environmental exposure, such as the authorizationenergy industry. Pension funds at both the United States state and municipal level, as well other countries and jurisdictions across the world, particularly in Europe, have announced plans to engagedivest holdings in motor carriercompanies engaged in
fossil fuels activities. If these or similar divestment efforts are continued, the price of our common stock or debt securities, and our ability to access capital markets or to otherwise obtain new investment or financing, may be negatively impacted.
Members of the investment community are also increasing their focus on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under demand-constraint scenarios, and net-zero ambitions in the energy industry in particular, and diversity, equity, and inclusion initiatives, political activities, and governance standards among companies more generally. As a result, we may face negative publicity, increasing pressure regarding our ESG practices and disclosures, and demands for ESG-focused engagement commenced by investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on company resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. Investors, stakeholders, and other interested parties are also increasingly focusing on issues related to environmental justice. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation of permits, termination of contracts, lawsuits, regulatory safety,action, and hazardous materials labeling, placarding and marking. There are additional regulations specifically relating to the trucking industry, including testing and specification of equipment and product handling requirements. The trucking industry is subject to possible regulatory and legislative changespolicy change that may adversely affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. Some of these possible changes include increasingly stringent fuel-economy environmental regulations, changes in the hours of service regulations that govern the amount of time a driver may drive in any specific period, onboard black box recorder or electronic logging devices or limits on vehicle weight and size.
To a large degree, intrastate motor carrier operations are subject to state safety regulations that mirror federal regulations. Such matters as weight and dimension of equipment are also subject to federal and state regulations. Furthermore, from time to time, various legislative proposals are introduced, such as proposals to increase federal, state or local taxes, including taxes on motor fuels, which mayour business strategy, increase our costs, and adversely affect our reputation and performance.
Additionally, members of the investment community may screen companies such as ours for ESG performance before investing in our common stock or adverselydebt securities, or lending to us. Credit ratings agencies are also increasingly using ESG as a factor in assigning their ratings, which could impact our cost of capital or access to financing. There has also been an acceleration in investor demand for ESG investing opportunities, and many institutional investors have committed to increasing the recruitmentpercentage of drivers. We cannot predict whether, or in what form, anytheir portfolios that are allocated towards ESG-focused investments. As a result, there has been a proliferation of ESG-focused investment funds, and market participants seeking ESG-oriented investment products. There has also been an increase in such taxes willthird-party providers of company ESG ratings, and more ESG-focused voting policies among proxy advisory firms, portfolio managers and institutional investors. Some investors and stakeholders are also increasingly focused on pursuing strategies centered on ESG-related activism.
If we are unable to meet the ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may become a target for ESG-focused activism, our cost of capital may increase, the price of our securities may be enacted or the extent to which they will apply tonegatively impacted, and our petroleum business and its operations.reputation may also be negatively affected.
Risks Related to the Nitrogen Fertilizer Segment
Any decline in U.S. agricultural production or limitations on the use of nitrogen fertilizer for agricultural purposes could have a material adverse effect on the sales, of nitrogen fertilizer, and on our results of operations, financial condition and cash flows.
Conditions in the U.S. agricultural industry significantly impact our operating results. The U.S. agricultural industry can be affected by a number of factors, including weather patterns and field conditions, current and projected grain inventories and prices, domestic and international population changes, demand for U.S. agricultural products, and U.S., state and foreign policies regarding trade in agricultural products. For example, a major factor underlying the solid level of demand for nitrogen-based fertilizer products, we produce is the use of corn for the production of ethanol in the U.S. Changesand changes in governmental regulations and incentives for ethanol production that could affect future corn-based ethanol demand and production.
State and federal governmental policies,production, including farm and biofuel subsidies and commodity support programs, as well as the prices of fertilizer products, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications.RFS program. Developments in crop technology such as nitrogen fixation (the conversion of atmospheric nitrogen into compounds that plants can assimilate), could also reduce the use of chemical fertilizers and adversely affect the demand for nitrogen fertilizer. In addition, from time to time various state legislatures have considered limitations onAll of the use and application of chemical fertilizers due to concerns about the impact of these products on the environment. Unfavorable state and federal governmental policiesforegoing could negatively affect nitrogen fertilizer prices and therefore have a material adverse effect on our results of operations, financial condition and cash flows.
Ethanol production in the United States is highly dependent upon a myriad of federal statutes and regulations, and is made significantly more competitive by various federal and state incentives and mandated usage of renewable fuels pursuant to EPA’s RFS. To date, the RFS has been satisfied primarily with corn-based fuel ethanol blended into gasoline. However, a number of factors, including the continuing “food versus fuel” debate and studies showing that expanded ethanol usage may increase the level of greenhouse gases in the environment as well as be unsuitable for small engine use, have resulted in calls to reduce subsidies for ethanol, allow increased ethanol imports and to repeal or waive (in whole or in part) the current RFS. Changes within the RFS program also could affect future ethanol demand and production. Further, while most ethanol is currently produced from corn and other raw grains, such as milo or sorghum, the RFS requires that a portion of the overall RFS renewable fuel mandate comes from advanced biofuels, including cellulose-based biomass, such as agricultural waste, forest residue, and municipal solid waste. In addition, there is a continuing trend to encourage the use of products other than corn and raw grains for ethanol production. The repeal of, or reduction in the benefits to ethanol producers under, ethanol incentive programs, an increase in ethanol imports, a substantial decrease in future renewable volume obligations under the RFS program, or a significant increase in the use of products other than corn and raw grains for ethanol production could affect the demand for corn-based ethanol and result in a decrease in planted corn acreage and in the demand for nitrogen fertilizer products and have a material adverse effect on our results of operations, financial condition and cash flows.
Our Coffeyville Facility may be adversely affected by the supply and price levels of pet coke. Failure by CVR Energy’s Coffeyville refineryRefinery to continue to supply us with pet coke and the availability of third-party pet coke at higher prices could negatively impact our results of operations.
Unlike our competitors, whose primary costs are related to the purchase of natural gas and whose costs are therefore largely variable, our Coffeyville Fertilizer Facility uses a pet coke gasification process to produce nitrogen fertilizer. Our profitability is directly affected by the price and availability of pet coke obtained from our Coffeyville Refinery pursuant to a long-term agreement. Our Coffeyville Fertilizer Facility has obtained the majority of its pet coke from our Coffeyville Refinery over the past five years. However, shouldyears, although it has decreased to 43% in 2021. Should our Coffeyville Refinery fail to perform in accordance with the existing agreement or to the extent pet coke from the Coffeyville Refinery is insufficient, we would need to purchase pet coke from third parties on the open market, which could negatively impact our results of operations to the extent third-party pet coke is unavailable or available only at higher prices. Currently, we purchase 100% of the pet coke our Coffeyville Refinery
produces. However, we are still required to procure additional pet coke at fixed prices from third parties to maintain our production rates. Accordingly, we are party to a pet cokeOur contracts for 327,000 tons of third-party supply agreement with a third-party refinery to provide a significant amount of pet coke at a fixed price. The term of this agreement endscurrently end in December 2019.2022.
The market for natural gas has been volatile, and fluctuations in natural gas prices could affect our competitive position.
Our Coffeyville Fertilizer Facility uses a pet coke gasification process to produce nitrogen fertilizer. When compared to our Coffeyville Fertilizer Facility, lowLow natural gas prices benefit our competitors that rely on natural gas as their primary feedstock and disproportionately impact our operations at our Coffeyville Fertilizer Facility by making us less competitive with natural gas-based nitrogen fertilizer manufacturers. Continued lowLow natural gas prices could result in nitrogen fertilizer pricing dropsdeclines and impair the ability of the Coffeyville Fertilizer Facility to compete with other nitrogen fertilizer producers who use natural gas as their primary feedstock, andwhich, therefore, would have a material adverse impact on the nitrogen fertilizer segment’sNitrogen Fertilizer Segment’s results of operations, financial condition and ability to make cash distributions.
The East Dubuque Fertilizer Facility uses natural gas as its primary feedstock, and as such, the profitability of operating the East Dubuque Fertilizer Facility is significantly dependent on the cost of natural gas. An increase in natural gas prices could make it less competitive with producers who do not use natural gas as their primary feedstock. In addition, an increase in natural gas prices in the United States relative to prices of natural gas paid by foreign nitrogen fertilizer producers may negatively affect our competitive position in the corn belt, and such changes could have a material adverse effect on our results of operations, financial condition, and cash flows.
We expect to purchase a portion of our natural gas for use in the East Dubuque Fertilizer Facility on the spot market. As a result, we remain susceptible to fluctuations in the price of natural gas in general and in local markets in particular. We may use short-term, fixed supply, fixed price forward purchase contracts to lock in pricing for a portion of its natural gas requirement, but we may not be able to enter into such agreements on acceptable terms or at all. Without forward purchase contracts for the supply of natural gas, we would need to purchase natural gas on the spot market, which would impair its ability to hedge exposure to risk from fluctuations in natural gas prices. If we enter into forward purchase contracts for natural gas, and natural gas prices decrease, then its cost of sales could be higher than it would have been in the absence of the forward purchase contracts.
Any interruption in the supply of natural gas to our East Dubuque Fertilizer Facility could have a material adverse effect on our results of operations and financial condition.
Our East Dubuque Fertilizer Facility depends on the availability of natural gas. We have an agreementtwo agreements for pipeline transportation of natural gas with Nicor pursuant to which we accessexpiration dates in 2022. We typically purchase natural gas from the ANR Pipeline Companythird parties on a spot basis and, Northern Natural Gas pipelines. Our accessfrom time to satisfactory supplies of natural gas through Nicor could be disrupted due to a number of causes, including volume limitations under the agreement, pipeline malfunctions, service interruptions, mechanical failures or other reasons. The agreement extends through October 31, 2019. time, may enter into fixed-price forward purchase contracts.Upon expiration of the agreement,agreements, we may be unable to extend the service under the terms of the existing agreementagreements or renew the agreementagreements on satisfactory terms, or at all.all, necessitating construction of a new connection that could be costly and disruptive. Any disruption in the supply of natural gas to our East Dubuque Fertilizer Facility could restrict our ability to continue to make products at the facility. In the event we need to obtain natural gas from another source, we may need to build a new connection from that source to the East Dubuque Fertilizer Facilityfacility and negotiate related easement rights, which would be costly, disruptive and/or may be unfeasible. As a result, any interruption in the supply of natural gas through Nicor could have a material adverse effect on our results of operations and financial condition.
If licensed technology were no longer available, our business may be adversely affected.
We have licensed, and may in the future license, a combination of patent, trade secret and other intellectual property rights of third parties for use in our plant operation. In particular, the gasification process used at the Coffeyville Fertilizer Facility to convert pet coke to high purity hydrogen for subsequent conversion to ammonia is licensed from a third party. The license, which is fully paid, grants us perpetual rights to use the pet coke gasification process on specified terms and conditions and is integral to the operations of the Coffeyville Fertilizer Facility. If this license or any other license agreement on which our operations rely were to be terminated, licenses to alternative technology may not be available, or may only be available on terms that are not commercially reasonable or acceptable. In addition, any substitution of new technology for currently-licensed technology may require substantial changes to manufacturing processes or equipment and may have a material adverse effect on our results of operations, financial condition and cash flows.
Additionally, we may face claims of infringement that could interfere with our ability to use technology that is material to our plant operations. Any litigation of this type related to third-party intellectual property rights could result in substantial costs and diversions of resources, either of which could have a material adverse effect on our results of operations, financial condition and cash flows. In the event a claim of infringement against us is successful, we may be required to pay royalties or license fees for past or continued use of the infringing technology, or we may be prohibited from using the infringing technology altogether. If we are prohibited from using any technology as a result of such a claim, we may not be able to obtain licenses to alternative technology adequate to substitute for the technology we can no longer use, or licenses for such alternative technology may only be available on terms that are not commercially reasonable or acceptable. In addition, any substitution of new technology for currently licensed technology may require us to make substantial changes to its manufacturing processes or equipment or to our products, and could have a material adverse effect on our results of operations, financial condition and cash flows.
Our operations are dependent on third-party suppliers, which could have a material adverse effect on our results of operations, financial condition and cash flows.
Operations of our Coffeyville Fertilizer Facility depend in large part on the performance of third-party suppliers, and the operations of the Coffeyville Fertilizer Facility could be adversely affected if the operation ofincluding the third-party air separation plant located adjacent to it were disrupted. Additionally, this air separation plant in the past has experienced numerous short-term interruptions, causing interruptions in our gasifier operations. With respect toand third-party electricity we are party to an electric services agreement with a third-party supplier, which allows for an option for us to extend the term of such agreement through June 30, 2024.
suppliers. Our East Dubuque Fertilizer Facility operations also depend in large part on the performance of third-party suppliers, including for the purchase of electricity. We entered into a utility service agreement, which terminates on May 31, 2019 and will continue year-to-year thereafter unless either party provides 12-month advance written notice of termination.
Should these, or any of our other third-party suppliers fail to perform in accordance with existing contractual arrangements, or should we otherwise lose the service of any third-party suppliers, our operations (or a portion thereof) could be forced to halt. Alternative sources of supply could be difficult to obtain. Any shutdown of our operations (or a portion thereof), even for a limited period, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.
We rely on third-party providers of transportation services and equipment, which subjects it to risks and uncertainties beyond its control that may have a material adverse effect on the nitrogen fertilizer segment’s results of operations, financial condition and ability to make distributions.
Our business relies on railroad and trucking companies to ship finished products to customers of the Coffeyville Fertilizer Facility. We also lease railcars from railcar owners to ship its finished products. Additionally, although customers of the East Dubuque Fertilizer Facility generally pick up products at the facility, the facility occasionally relies on barge, truck and railroad companies to ship products to customers. These transportation operations, equipment and services are subject to various hazards, including extreme weather conditions, work stoppages, delays, spills, derailments and other accidents and other operating hazards. Further, the limited number of towing companies and barges available for ammonia transport may also impact the availability of transportation for our nitrogen fertilizer segment’s products. These transportation operations, equipment and services are also subject to environmental, safety and other regulatory oversight. Due to concerns related to terrorism or accidents, local, state and federal governments could implement new regulations affecting the transportation of our finished products. In addition, new regulations could be implemented affecting the equipment used to ship its finished products.
Any delay in our ability to ship its finished products as a result of these transportation companies’ failure to operate properly, the implementation of new and more stringent regulatory requirements affecting transportation operations or equipment, or significant increases in the cost of these services or equipment could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.
Ammonia can be very volatile and extremely hazardous. Any liability for accidents involving ammonia or other products we produce or transport that cause severe damage to property or injury to the environment and human health could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In addition, the costs of transporting ammonia could increase significantly in the future.
Our business manufactures, processes, stores, handles, distributes and transports ammonia, which can be very volatile and extremely hazardous. Major accidents or releases involving ammonia could cause severe damage or injury to property, the environment, and human health, as well as a possible disruption of supplies and markets. Such an event could result in civil lawsuits, fines, penalties and regulatory enforcement proceedings, all of which could lead to significant liabilities. Any damage or injury to persons, equipment or property or other disruption of our ability to produce or distribute products could result in a significant decrease in operating revenues and significant additional costcosts to replace or repair and insure our assets, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Our facilities periodically experience minor releases of ammonia related to leaks from its equipment. Similar events may occur in the future.
In addition, we may incur significant losses or increased costs relating to the operation of railcars used for the purpose of carrying various products, including ammonia. Due to the dangerous and potentially hazardous nature of the cargo we carry, in
particular ammonia, a railcar accident may result in fires, explosions, and releases of material which could lead to sudden, severe damage or injury to property, the environment, and human health. In the event of contamination, under environmental law, we may be held responsible even if it iswe are not at fault, and we complied with the laws and regulations in effect at the time of the accident. Litigation arising from accidents involving ammonia and other products we produce or transport may result in us being named as a defendant in lawsuits asserting claims for substantial damages, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.
Risks Related to Our Capital Structure
Internally generated cash flows and other sources of liquidity may not be adequate for the capital needs of our businesses.
Our businesses are capital intensive, and working capital needs may vary significantly over relatively short periods of time. For instance, crude oil price volatility can significantly impact working capital on a week-to-week and month-to-month basis. If we cannot generate adequate cash flow or otherwise secure sufficient liquidity to meet our working capital needs or support our short-term and long-term capital requirements, we may be unable to meet our debt obligations, pursue our business strategies or comply with certain environmental standards, which would have a material adverse effect on our business and results of operations.
Instability and volatility in the capital, credit, and commodity markets in the global economy could negatively impact our business, financial condition, results of operations and cash flows.
Our business, financial condition and results of operations could be negatively impacted by difficult conditions and volatility in the capital, credit, and commodities markets and in the global economy. For example:
Although we believe the petroleum segment has sufficient liquidity under its Amended and Restated ABL credit facility to operate Refineries, and that the nitrogen fertilizer segment has sufficient liquidity under its ABL credit facility to run the nitrogen fertilizer segment, under extreme market conditionsexample, there can be no assurance that such funds wouldunder our credit facilities will be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
Marketall; market volatility could exert downward pressure on the price of CVR Partners’ common units, which may make it more difficult for us to raise additional capital and thereby limit its ability to grow, which could in turn cause the CVR EnergyEnergy’s stock and/or CVR Partners’ unit price to drop.
The petroleum segment’s and nitrogen fertilizer business’ credit facilities contain various covenants that must be complied with, and if either segment is not in compliance, there can be no assurance that either segment would be able to successfully amend the agreement in the future. Further, any such amendment may be expensive. In addition, any new credit facility the petroleum segmentdrop; or nitrogen fertilizer segment may enter into may require each to agree to additional covenants.
Market conditions could result in significant customers experiencing financial difficulties. We are exposed to the credit risk of our customers, and their failuredifficulties may fail to meet their financial obligations when due because of bankruptcy, lack of liquidity, operational failure, or other reasons could result in decreased sales and earnings for us.
CVR Refining and CVR Partners’ level ofOur indebtedness may increase and affect our ability to operate theirour businesses, and may have a material adverse effect on our financial flexibility, financial condition and results of operations.
We have incurred indebtedness atAlthough existing credit facilities contain restrictions on the petroleum and nitrogen fertilizer segments and we may be able to incur significantoccurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in the future. If new indebtedness is added to current indebtedness, the risks described belowcompliance with these restrictions could increase. Theirbe substantial and secured. The level of indebtedness could have important consequences, such as:
including the following: (i) limiting our ability to obtain additional financing to fund working capital needs, capital expenditures, debt service requirements, acquisitions, general corporate, or other purposes;
(ii) requiring us to utilize a significant portion of cash flows to service indebtedness, thereby reducing our funds available cashfor operations, future business opportunities, and the ability to make distributions to us and public common unitholders of CVR Partners;
(iii) limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt;
(iv) limiting our ability to compete with other companies who are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions;
(v) limiting our ability to make certain payments on debt that is subordinated or secured on a junior basis;
restricting us from making strategic acquisitions or investments, introducing new technologies or exploiting business opportunities;
(vi)restricting the way in which we conduct business because of financial and operating covenants, in the agreements governing existingincluding regarding borrowing additional funds, disposing of assets, and future indebtedness, including, in the case of certain indebtedness of subsidiaries, certain covenants that restrictrestricting the ability of subsidiaries to pay dividends or make other distributions;
(vii) limiting our ability to enter into certain transactions with our affiliates;
(viii) limiting our ability to designate our subsidiaries as unrestricted subsidiaries;
(ix) exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained in their or their respective subsidiaries’ debt instruments that could have a material adverse effect on our business, financial condition and operating results;
instruments; (x) increasing our vulnerability to a downturn in general adverse economic and industry conditions or inadverse pricing of products; (xi) increasing the likelihood for a reduction in the borrowing base under CVR Refining’s Amended and
Restated ABL Credit Facility following a periodic redetermination could require us to repay a portion of our then-outstanding bank borrowings; and (xii) limiting our ability to react to changing market conditions in their respectiveour industries and in respective customers’ industries.
In addition to debt service obligations,Covenants in our petroleum and nitrogen fertilizer operations require substantial capital investments on a continuing basis. The ability to make scheduled debt payments, to refinance obligations with respect to existing indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of operating assets, properties and systems software, as well as to provide capacity for business growth, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors.
In addition, our petroleum and nitrogen fertilizer segments are and will be subject to covenants contained in agreements governing their present and future indebtedness. These covenants include, and will likely include, restrictions on certain payments (including restrictions on CVR Partners to make distributions to unitholders), the granting of liens, the incurrence of additional indebtedness, dividend restrictions affecting subsidiaries, asset sales, transactions with affiliates and mergers and consolidations. Any failure to comply with these covenants could result in a default under current credit agreements or debt instruments or future credit agreements.
Our operating segments may not be able to generate sufficient cash to service existing indebtedness and may be forced to take other actions to satisfy debt obligations that may not be successful.
The petroleum and nitrogen fertilizer segments’ ability to satisfy existing debt obligations will depend upon, among other things:
future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
future ability to obtain other financing.
We cannot offer any assurance that our businesses will generate sufficient cash flow from operations, that our petroleum business will be able to draw under its Amended and Restated ABL Credit Facility or that the nitrogen fertilizer business will be able to draw under its ABL credit facility or otherwise, or from other sources of financing, in an amount sufficient to fund respective liquidity needs.
If cash flows and capital resources are insufficient to service existing indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance existing indebtedness or seek bankruptcy protection. These alternative measures may not be successful and may not permit the meeting of scheduled debt service obligations. Our ability to restructure or refinance debt will depend on the condition of the capital markets and our financial condition, including that of our operating segments, at such time. Any refinancing of existing debt could be at higher interest rates and may require compliance with more onerous covenants, which could further restrict business operations, and the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. In addition, in the absence of adequate cash flows or capital resources, our businesses could face substantial liquidity problems and might be required to dispose of material assets or operations, or, in the case of CVR Partners, sell equity, and/or negotiate with lenders to restructure the applicable debt in order to meet their debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Market or business conditions may limit our ability to avail themselves of some or all of these options. Furthermore, any proceeds that they realize from any such dispositions may not be adequate to meet existing debt service obligations when due.
The borrowings under CVR Refining’s Amendedincur additional indebtedness and Restated ABL Credit Facility and CVR Partners’ ABL credit facility bear interest at variable rates and other debt we or they incur could likewise be variable-rate debt. If market interest rates increase, variable-rate debt will create higher debt service requirements,engage in certain transactions, as well as limit operational flexibility, which could adversely affect distributions to us. We may enter into agreements limiting exposure to higher interest rates, but any such agreements may not offer complete protection from this risk.
Our petroleumour liquidity and nitrogen fertilizer debt agreements contain restrictions that limit flexibility in operating the respective businesses and, in the case of CVR Partners, limit the ability to make distributions to unitholders.pursue our business strategies.
The CVR Refining and CVR Partners’Our debt facilities and instruments contain, and any instruments governing future indebtedness would likely contain, a number of covenants that impose significant operating and financial restrictions on us and our subsidiaries and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on the ability, to, among other things:
things, to: incur, assume, or guarantee additional indebtedness or issue certainredeemable or preferred units;
stock; pay dividends or distributions in respect of common unitsequity securities or make other restricted payments;
prepay, redeem, or repurchase certain debt; enter into agreements that restrict distributions from restricted subsidiaries; make certain payments on debt that is subordinated or secured on a junior basis;
make certain investments;
sell certain assets;
or otherwise dispose of assets, including capital stock of subsidiaries; create liens on
certain assets;
consolidate, merge, sell, or otherwise dispose of all or substantially all assets;
enter into certain transactions with affiliates; and
designate subsidiaries as unrestricted subsidiaries.
Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict operating activities. Any failure to comply with these covenants could result in a default under existing debt facilities and instruments. Upon a default, unless waived, the lenders under such debt facilities and instruments would have all remedies available to a secured lender and could elect to terminate their commitments, cease making further loans, institute foreclosure proceedings against assets, and force bankruptcy or liquidation, subject to any applicable intercreditor agreements. In addition, a default under existing debt facilities and instruments would trigger a cross default under other agreements and could trigger a cross default under the agreements governing future indebtedness. Our operating segments’ results may not be sufficient to service existing indebtedness or to fund other expenditures, and we may not be able to obtain financing to meet these requirements.
DespiteWe may not be able to generate sufficient cash to service existing indebtedness and may be forced to take other actions to satisfy debt obligations that may not be successful.
Our ability to satisfy existing debt obligations will depend upon, among other things: future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory, and other factors, many of which are beyond our control; future ability to borrow under CVR Refining’s Amended and Restated ABL Credit Facility and CVR Partners’ AB Credit Facility, the availability of which depends on, among other things, complying with the covenants in the applicable facility; and future ability to obtain other financing.
We cannot offer any assurance that our businesses will generate sufficient cash flow from operations, or that we will be able to draw under our credit facilities or from other sources of financing, in an amount sufficient to fund respective liquidity needs. In addition, our board of directors may in the future elect to pursue other strategic options including acquisitions of other businesses or asset purchases, which would reduce cash available to service our debt obligations.
If cash flows and capital resources are insufficient to service existing indebtedness, we may still be ableforced to incur significantlyreduce or delay capital expenditures, sell assets, seek additional capital, restructure or refinance existing indebtedness, or seek bankruptcy protection. These alternative measures may not be successful and may not permit the meeting of scheduled debt service and other obligations. Our ability to restructure or refinance debt will depend on the condition of the capital markets and our financial condition, including that of our operating segments, at such time. Any refinancing of existing debt could be at higher interest rates and may require compliance with more debt, including secured indebtedness. Thisonerous covenants, which could intensify the risks described above.further restrict business operations.
We may be able to incur substantially more debt in the future, including secured indebtedness. Although existingThe borrowings under our credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subjectbear interest at variable rates and other debt we or they incur could likewise be variable-rate debt. If market interest rates increase, variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow and/or distributions to a number of qualifications and exceptions and, under certain circumstances, indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictionsus. Although we may enter into agreements limiting exposure to higher interest rates, any such agreements may not prevent incurring new obligations that do not constitute indebtedness. To the extent such new debt or new obligations are added to existing indebtedness, the risks described above could substantially increase.offer complete protection from this risk.
We are authorized to issue up to a total of 350 million shares of our common stock and 50 million shares of preferred stock, potentially diluting equity ownership of current holders and the share price of our common stock.
We believe that it is necessary to maintain a sufficient number of available authorized shares of our common stock and preferred stock to provide us with the flexibility to issue common stock or preferred stock for business purposes that may arise as deemed advisable by our board of directors. These purposes could include, among other things, (i) future stock dividends or stock splits, which may increase the liquidity of our shares; (ii) the sale of stock to obtain additional capital or to acquire other companies or businesses, which could enhance our growth strategy or allow us to reduce debt if needed; (iii) for use in additional stock incentive programs and (iv) for other bona fide purposes. Our board of directors may authorize us to issue the available authorized shares of common stock or preferred stock without notice to, or further action by, our stockholders, unless stockholder approval is required by law or the rules of the NYSE. The issuance of additional shares of common stock or preferred stock may significantly dilute the equity ownership of the current holders of our common stock.
Our ability to pay dividends on our common stock is subject to market conditions and numerous other factors.
In January 2013, our board of directors adopted a quarterly dividend policy. We began paying regular quarterly dividends in the second quarter of 2013. Dividends are subject to change at the discretion of the board of directors and may change from quarter to quarter. Our ability to continue paying dividends is subject to our ability to continue to generate sufficient cash flow from our operating segments, and the amount of dividends we are able to pay each year may vary, possibly substantially, based on market conditions, crack spreads, our capital expenditure and other business needs, covenants contained in any debt agreements we may enter into in the future, covenants contained in existing debt agreements, and the amount of distributions we receive from CVR Partners. We may not be able to continue paying dividends at the rate we currently pay dividends, or at all. If the amount of our dividends decreases, the trading price of our common stock could be materially adversely affected as a result.
Risks Related to Our Corporate Structure
The Company’s reorganization of its entities and assets could trigger increased costs, complexity and risks.
In February 2022, the Board approved a plan to form multiple new entities, into which the Company expects to transfer various assets and make other changes relating to the Company’s efforts to increase optionality and segregate its renewables business, including the development and execution of additional contractual arrangements and the transfer of consideration by and between various of the Company’s subsidiaries, including subsidiaries of CVR Partners. Execution of the plan and the transfer of assets could subject the Company to increased costs and operational complexity and trigger transfer of or application
for various permits, licenses and operating authorities; approval from the Company’s noteholders or refinance of the Company’s debt; and/or governmental response. Also, our plan may not be successful for many reasons, including but not limited to adverse legal and regulatory developments that may affect particular businesses. Failure to execute the plan or manage risks relating thereto could have a material adverse effect on our results of operations, financial condition and cash flows.
We are a holding company and depend upon our subsidiaries for our cash flow.
As of the period ending December 31, 2018, our two principal subsidiaries are CVR Refining (our petroleum segment) and CVR Partners (our nitrogen fertilizer segment), a publicly traded partnership, with a portion of its common units traded on the NYSE. We are a holding company, and theseour subsidiaries conduct substantially all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations or to pay dividends or make other distributions in the future will depend upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of distributions. The ability of CVR Partners to make any payments to us will depend on, among other things, their earnings, the terms of existing indebtedness (including the terms of any debt facilities and instruments), tax considerations and legal restrictions. In particular, future debt facilities and instruments incurred at our subsidiaries may impose significant limitations on the ability of our subsidiaries to generate sufficient cash flow or, in the case of CVR Partners, make distributions to us and consequently our ability to issue dividends to our stockholders.
Mr. Carl C. Icahn exerts significant influence over the Company, and his interests may conflict with the interests of the Company’s other stockholders.
Mr. Carl C. Icahn indirectly controls approximately 71% of the voting power of our common stock and, by virtue of such stock ownership, is able to control or exert substantial influence over the Company, including:
including the election and appointment of directors;
business strategy and policies;
mergers or other business combinations;
acquisition or disposition of assets;
future issuances of common stock, common units, or other securities;
incurrence occurrence of debt or obtaining other sources of financing; and
the payment of dividends on the Company’s common stock and distributions on the common units of CVR Partners.
The existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third partythird-party from seeking to acquire a majority of the Company’s outstanding common stock, which may adversely affect the market price of the Company’s common stock.
Mr. Icahn’s interests may not always be consistent with the Company’s interests or with the interests of the Company’s other stockholders. Mr. Icahn and entities controlled by him may also pursue acquisitions or business opportunities in industries in which we compete, and there is no requirement that any additional business opportunities be presented to us. We also have and may in the future enter into transactions to purchase goods or services with affiliates of Mr. Icahn. To the extent that conflicts of interest may arise between the Company and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to the Company or its other stockholders.
In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all of his interests in us to an unrelated party or group, a change of control could be deemed to have occurred under the terms of the indenturesindenture governing CVR Refining’s 6.5% senior notes,Energy’s 5.250% and 5.750% Senior Notes, which would require it to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued interest to the date of repurchase, and an event of default could be deemed to have occurred under CVR Refining’s Amended and Restated ABL Credit Facility, which would allow lenders to accelerate indebtedness owed to them. However, it is possible that
we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or repay amounts outstanding under CVR Refining’s Amended and Restated ABL Credit Facility, if any.
Our stock price may decline due to sales of shares by Mr. Carl C. Icahn.
Sales of substantial amounts of the Company’s common stock, or the perception that these sales may occur, may adversely affect the price of the Company’s common stock and impede its ability to raise capital through the issuance of equity securities in the future. Mr. Icahn could elect in the future to request that the Company file a registration statement to him to sell shares of the Company’s common stock. If Mr. Icahn were to sell a large number of shares into the public markets, Mr. Icahn could cause the price of the Company’s common stock to decline.
We are a “controlled company” within the meaning of the NYSE rules and, as a result, qualify for, and are relying on, exemptions from certain corporate governance requirements.
A company of which more than 50% of the voting power is held by an individual, a group, or another company is a “controlled company” within the meaning of the NYSE rules and may elect not to comply with certain corporate governance requirements of the NYSE, including:
including the requirementrequirements that a majority of our board of directors consist of independent directors;
the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors; and
the requirement that we have a compensation committee that is composed entirely of independent directors.
We are relying on all of these exemptions as a
controlled company. Accordingly, youour stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. In addition, CVR Partners is relying on exemptions from the same NYSE corporate governance requirements described above.
We have various mechanisms in place to discourage takeover attempts, which may reduce or eliminate our stockholders’ ability to sell their shares for a premium in a change of control transaction.
Various provisions of our amended certificate of incorporation and second amended and restated bylaws and of Delaware corporate law may discourage, delay, or prevent a change in control or takeover attempt of our Company by a third party that our management and board of directors determines is not in the best interest of our Company and its stockholders.third-party. Public stockholders who might desire to participate in such a transaction may not have the opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors. These provisions include:
include preferred stock that could be issued by our board of directors to make it more difficult for a third partythird-party to acquire, or to discourage a third partythird-party from acquiring, a majority of our outstanding voting stock;
limitations on the ability of stockholders to call special meetings of stockholders;
limitations on the ability of stockholders to act by written consent in lieu of a stockholders’ meeting; and
advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings.
Compliance with and changes in the tax laws could adversely affect our performance.
We are subject to extensive tax liabilities, including United StatesU.S. and state income taxes and transactional taxes such as excise, sales/use, payroll, franchise, and withholding taxes. New tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future.
Risks Related to Our Ownership in CVR Partners
CVR Partners’ policy is to distribute an amount equal to the “available cash” it generates each quarter, which could limit its ability to grow and make acquisitions.
The current policy of the board of directors of CVR Partners’ general partner, which is an indirect, wholly-owned subsidiary of CVR Energy, is to distribute an amount equal to the available cash generated by CVR Partners each quarter to its unitholders. As a result of its cash distribution policy, CVR Partners will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures. As such, to the extent it is unable to finance growth externally, CVR Partners’ cash distribution policy may significantly impair its ability to grow. CVR Partners may not have sufficient available cash each quarter to enable the payment of distributions to common unitholders. Furthermore, its partnership agreement does not require it to pay distributions on a quarterly basis or otherwise. As such, the board of directors of its general partner may modify or revoke its cash distribution policy at any time at its discretion, including in such a manner that would result in an elimination of cash distributions regardless of the amount of available cash our business generates.
In addition, because of its distribution policy, CVR Partners’ growth, if any, may not be as robust as that of businesses that reinvest their available cash to expand ongoing operations. To the extent CVR Partners issues additional units in connection with any acquisitions or expansion capital expenditures or as in-kind distributions, current unitholders will experience dilution and the payment of distributions on those additional units will decrease the amount CVR Partners distributes in respect of its outstanding units. Under CVR Partners’ partnership agreement, it is authorized to issue an unlimited number of additional interests without a vote of the common unitholders. The issuance by CVR Partners of additional common units or other equity interests of equal or senior rank will reduce the proportionate ownership interest of common unitholders immediately prior to the issuance. As a result of the issuance of common units, the following may occur:
the amount of cash distributions on each common unit may decrease;
the ratio of CVR Partners’ taxable income to distributions may increase;
the relative voting strength of each previously outstanding common unit will be diminished; and
the market price of the common units may decline.
In addition, CVR Partners’ partnership agreement does not prohibit the issuance by its subsidiaries of equity interests, which may effectively rank senior to the common units. The incurrence of additional commercial borrowings or other debt to finance its growth strategy would result in increased interest expense, which, in turn, would reduce the available cash it has to distribute to unitholders.
If CVR Partners were to be treated as a corporation for U.S. federal income tax purposes or if it becomes subject to entity-level taxation for state tax purposes, its cash available for distribution to its common unitholders, including to us, would be substantially reduced, likely causing a substantial reduction in the value of its common units, including the common units held by us.
The anticipated after-tax economic benefit of an investment in common units of CVR Partners depends largely on it being treated as a partnership for U.S. federal income tax purposes. Despite the fact that CVR Partners is organized as a limited partnership under Delaware law, it would be treated as a corporation for U.S. federal income tax purposes unless it satisfies a “qualifying income” requirement. CVR Partners may not find it possible to meet this qualifying income requirement, or may inadvertently fail to meet this qualifying income requirement.
Currentrequirement, or a change in current law may change, causingcould cause CVR Partners to be treated as a corporation for U.S. federal income tax purposes or otherwise subjectingsubject CVR Partners to entity-level taxation.
If CVR Partners were to be treated as a corporation for U.S. federal income tax purposes, it would pay U.S. federal income tax on all of its taxable income at the corporate tax rate. Distributions to its common unitholders (including us) would generally be taxed again as corporate distributions, and no income, gains, losses, or deductions would flow through to such common unitholders. Because a tax would be imposed upon CVR Partners as a corporation, its cash available for distribution to its common unitholders would be substantially reduced. Therefore, treatment of CVR Partners as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to its common unitholders (including us), likely causing a substantial reduction in the value of such common units.
We may have liability to repay distributions that are wrongfully distributed to us.
Under certain circumstances, we may, as a holder of common units in CVR Partners, have to repay amounts wrongfully returned or distributed to us. Under the Delaware Revised Uniform Limited Partnership Act, a partnership may not make distributions to its unitholders if the distribution would cause its liabilities to exceed the fair value of its assets. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the company for the distribution amount.
Public investors own approximately 66%64% of the nitrogen fertilizer segmentNitrogen Fertilizer Segment through CVR Partners. Although we own the general partner of the CVR Partners, the general partner owes a duty of good faith to public unitholders, which could cause them to manage their respective businesses differently than if there were no public unitholders.
Public investors own approximately 66%64% of CVR Partners’ common units. We are not entitled to receive all of the cash generated by CVR Partners or freely transfer money to finance operations at the petroleum segment.Petroleum Segment. Furthermore, although we own the general partner of CVR Partners, the general partner is subject to certain fiduciary duties, which may require the general partner to manage its business in a way that may differ from our best interests.
The general partner of CVR Partners has limited its liability, replaced default fiduciary duties and restricted the remedies available to common unitholders, including us, for actions that, without these limitations and reductions might otherwise constitute breaches of fiduciary duty.
The partnership agreement of CVR Partners limits the liability and replaces the fiduciary duties of the general partner, while also restricting the remedies available to the partnership’s common unitholders, including us, for actions that, without these limitations and reductions, might constitute breaches of fiduciary duty. Delaware partnership law permits such contractual reductions of fiduciary duty. The partnership agreement contains provisions that replace the standards to which the general partner would otherwise be held by state fiduciary duty law. For example:
The partnership agreement permits CVR Partners’ general partner to make a number of decisions in its individual capacity, as opposed to its capacity as general partner. This entitles its general partner to consider only the interests and factors that it desires, and means that it has no duty or obligation to give any consideration to any interest of, or factors affecting, any limited partner.
The partnership agreement provides that CVR Partners’ general partner will not have any liability to unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decision was in the best interest of CVR Partners.
The partnership agreement provides that CVR Partners’ general partner and the officers and directors of its general partner will not be liable for monetary damages to common unitholders, including us, for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or its officers or directors acted in bad faith or engaged in fraud or willful misconduct, or in the case of a criminal matter, acted with knowledge that the conduct was criminal.
In addition, CVR Partners’ partnership agreement (i) generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of its general partner and not involving a vote of unitholders must be on terms no less favorable to CVR Partners than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to CVR Partners, as determined by its general partner in good faith, and that, in determining whether a transaction or resolution is “fair and reasonable,” the general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to affiliated parties, including us and (ii) provides that in resolving conflicts of interest, it will be presumed that in making its decision, the general partner or its conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any holder of common units, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
With respect to the common units that we own, we have agreed to be bound by the provisions set forth in the partnership agreement, including the provisions described above.
CVR Partners is managed by the executive officers of its general partner, some of whomwho are employed by and also serve as part of the senior management team of the Company. Conflicts of interest could arise as a result of this arrangement.
CVR Partners is managed by the executive officers of its general partner, some of whomwho are employed by and also serve as part of the senior management team of the Company. Furthermore, although CVR Partners has entered into services agreementsa service agreement with the Company under which it compensates the Company for the services of its management, our management is not required to devote any specific amount of time to the nitrogen fertilizer segmentNitrogen Fertilizer Segment and may devote a substantial majority of their time to other business of the Company. Moreover, the Company may terminate the services agreement with CVR Partners at any time, in each case subject to a 180-day90-day notice period. In addition, key executive officers of the Company, including its president and chief executive officer, chief financial officer, and general counsel, will face conflicts of interest if decisions arise in which CVR Partners and the Company have conflicting points of view or interests.
General Risks Related to CVR Energy
The acquisition, expansion and investment strategy of our businesses involves significant risks.
From time to time, we may consider pursuing acquisitions and expansion projects to continue to grow and increase profitability. We also may make investments in other entities, such as our current investment in Delek US Holdings, Inc. (“Delek”). There can be no assurance that we will be able to consummate any acquisitions or expansions, successfully integrate acquired businesses or entities, or generate positive cash flow at any acquired company or expansion project. Challenges that may lead to failed consummation of an expansion/acquisition include intense competition for suitable acquisition targets, the potential unavailability of financial resources necessary, difficulties in securing sufficiently favorable terms, and the failure to obtain requisite regulatory or other governmental approvals or the approval of equity holders of the entities in which we have invested. In addition, any future acquisitions, expansions or investments may entail significant transaction costs and risks associated with entry into new markets and lines of business, including but not limited to new regulatory obligations and risks, and integration challenges such as disruption of operations; failure to achieve financial or operating objectives contributing to the accretive nature of an acquisition; strain on controls, procedures and management; the need to modify systems or to add management resources; the diversion of management time from the operation of our business; customer and personnel retention; assumption of unknown material liabilities or regulatory non-compliance issues; amortization of acquired assets, which would reduce future reported earnings; and possible adverse short-term effects on our cash flows or operating results. Also, our investments may not be successful for many reasons, including, but not limited to, lack of control; worsening of general economic and market conditions; or adverse legal and regulatory developments that may affect particular businesses. Failure to manage these acquisition, expansion and investment risks could have a material adverse effect on our results of operations, financial condition and cash flows. Our joint ventures involve similar risks.
We are subject to the risk of becoming an investment company.
From time to time, we may own less than a 50% interest in other public companies, which exposes us to the risk of inadvertently becoming an investment company required to register under the Investment Company Act (“ICA”). Events beyond our control, including significant appreciation or depreciation in the market value of certain of our publicly traded holdings or adverse developments, could result in our inadvertently becoming an investment company required to register under the ICA and subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates, and could also be subject to monetary penalties or injunctive relief for failure to register as such.
Internally generated cash flows and other sources of liquidity may not be adequate for the capital needs of our businesses.
Our businesses are capital intensive, and working capital needs may vary significantly over relatively short periods of time. For instance, crude oil price volatility can significantly impact working capital on a week-to-week and month-to-month basis. If we cannot generate adequate cash flow or otherwise secure sufficient liquidity to meet our working capital needs or support our short-term and long-term capital requirements, we may be unable to meet our debt obligations, pursue our business strategies, or comply with certain environmental standards, which would have a material adverse effect on our business and results of operations.
Our ability to pay dividends on our common stock is subject to market conditions and numerous other factors.
Dividends are subject to change at the discretion of the board of directors and may change from quarter to quarter and may not be paid at historical rates or at all. Our ability to continue paying dividends is subject to our ability to continue to generate sufficient cash flow from our operating segments, and the amount of dividends we are able to pay each year may vary, possibly substantially, based on market conditions, crack spreads, our capital expenditure and other business needs, covenants contained in any debt agreements we may enter into in the future, covenants contained in existing debt agreements, and the amount of distributions we receive from CVR Partners. If the amount of our dividends decreases, the trading price of our common stock could be materially adversely affected as a result.
Item 1B. Unresolved Staff Comments
There are no material unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Exchange Act.None.
Item 2. Properties
Refer to Part I, Item 1, “Petroleum” and “Nitrogen Fertilizer” of this Report for more information on our core business properties. We also lease property for our executive office which is locatedand marketing offices in Sugar Land, Texas. Additionally, other office space is leased inTexas and Kansas City, Kansas, and Oklahoma City, Oklahoma.respectively.
Item 3. Legal Proceedings
In the ordinary course of business, we may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters and certain matters may require years to resolve. Refer to Part II, Item 8, Note 11 (“Commitments and Contingencies”), Contingencies of this Report for further discussion on current litigation matters. Although we cannot provide assurance, we believe that an adverse resolution of the matters described belowtherein would not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.
Unresolved Matters
The U.S. Attorney’s office for the Southern District of New York contacted CVR Energy in September 2017 seeking production of information pertaining to CVR Refining’s, CVR Energy’s and Mr. Carl C. Icahn’s activities relating to the RFS and Mr. Icahn’s former role as an advisor to the President. CVR Energy cooperated with the request and provided information in response to the subpoena. The U.S. Attorney’s office has not made any claims or allegations against CVR Energy or Mr. Icahn. CVR Energy believes it maintains a strong compliance program and, while no assurances can be made, CVR Energy does not believe this inquiry will have a material impact on its business, financial condition, results of operations or cash flows.
On August 21, 2018, CRRM received a letter from the United States Department of Justice (“DOJ”) on behalf of the EPA and Kansas Department of Health and Environment (“KDHE”) alleging violations of the Clean Air Act (“CAA”) and a 2012 Consent Decree between CRRM, the United States (on behalf of EPA) and KDHE at CRRM’s Coffeyville refinery. In September 2018, CRRM executed a tolling agreement with the DOJ and KDHE extending time for negotiation regarding the agencies’ allegations through March 31, 2019. At this time the Company cannot reasonably estimate the potential penalties, costs, fines or other expenditures that may result from this matter or any subsequent enforcement or litigation relating thereto and, therefore, the Company cannot determine if the ultimate outcome of this matter will have a material impact on the Company’s financial position, results of operations or cash flows.
In September 2018, the Kansas Court of Appeals upheld property tax determinations by the Kansas Board of Tax Appeals in connection with Coffeyville Resources Nitrogen Fertilizer, LLC’s (“CRNF”) dispute with Montgomery County, Kansas over prior year property tax payments as previously disclosed. On October 29, 2018, Montgomery County petitioned the Kansas Supreme Court to review the Court of Appeals’ determination. Subsequent briefs were filed by CRNF and Montgomery County. The Kansas Supreme Court has not yet ruled on whether it will hear the Montgomery County appeal.
As of February 20, 2019, the Company, CVR Refining and its general partner, CVR Refining Holdings, IEP, and certain directors and affiliates have each been named in at least one of six lawsuits filed in the Court of Chancery of the State of Delaware by purported former unitholders of CVR Refining, on behalf of themselves and an alleged class of similarly situated unitholders (the “Call Option Lawsuits”). The Call Option Lawsuits primarily allege breach of contract, tortious interference and breach of the implied covenant of good faith and fair dealing and seek monetary damages and attorneys’ fees, among other remedies, relating to the Company’s exercise of the call option under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner. The Call Option Lawsuits are in the earliest stages of litigation. The Company believes the Call Option Lawsuits are without merit and intends to vigorously defend against them.
Resolved Matters
On December 13, 2018, CVR Partners entered into a “Claim Settlement and Release Agreement” regarding the business interruption claim filed during early 2018 under its insurance policies, related to damage and resulting reduced equipment production rates experienced during the second half of 2017 and early 2018. The settlement is considered favorable for CVR Partners and the claim has now been resolved.
Item 4. Mine Safety Disclosures
Not applicable.
December 31, 20182021 | 4336
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Performance Graph
The performance graph below compares the cumulative total return of our common stock to (a) the cumulative total return of the S&P 500 Composite Index and (b) a composite peer group (“Peer Group”) consisting of Delek US Holdings, Inc., HollyFrontier Corporation, Marathon Petroleum Corp,Corp., Par Pacific Holdings, Inc, PBF Energy Inc. and Valero Energy Corporation. The graph assumes that the value of the investment in common stock and each index was $100 on December 31, 20132016 and that all dividends were reinvested. Investment is weighted on the basis of market capitalization.
The share price performance shown on the graph is not necessarily indicative of future price performance. Information used in the graph was obtained from Yahoo! Finance (finance.yahoo.com). The performance graph above is furnished and not filed for purposes of the Securities Act and the Exchange Act. The performance graph is not soliciting material subject to Regulation 14A.
Market Information
Our common stock is listed under the symbol “CVI” on the New York Stock Exchange.
CVR Energy, Inc. - Exchange Offer
In August 2018, CVR Energy completed an exchange offer whereby public unitholders tendered a total(“NYSE”). The Company has 115 holders of 21,625,106 CVR Refining common units in exchange for a total of 13,699,549 shares of CVR Energy common stock. Following the exchange offer, Icahn Enterprises L.P. (“IEP”) and its affiliates owned approximately 71%record of the Company’s outstanding shares. Refer to Note 1 (“Organization and Natureshares as of Business”) in Item 8 for further information.December 31, 2021.
Purchases of Equity Securities by the Issuer
On October 23, 2019, the Board of Directors of the Company (the “Board”) authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program would enable the Company to repurchase up to $300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated or modified by the Board at any time.
We did not repurchase any of our common stock during the fiscal yearyears ended December 31, 2018.2021, 2020 and 2019.
Item 6. Selected Financial Data
The following table sets forth certain selected consolidated financial data as of and for each year in the five-year period ended December 31, 2018. The selected consolidated financial information presented below has been derived from our historical financial statements. The following table should be read in conjunction with Item 7 and our consolidated financial statements and relates notes thereto in Item 8.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| (in millions) | |
| Statements of Operations | | | | | | | | | |
| Net sales | $ | 7,124 |
| | $ | 5,988 |
| | $ | 4,782 |
| | $ | 5,433 |
| | $ | 9,110 |
|
| Net income attributable to CVR Energy stockholders | 289 |
| | 235 |
| | 25 |
| | 170 |
| | 174 |
|
| | | | | | | | | | |
| Basic and diluted earnings per share | $ | 3.12 |
| | $ | 2.70 |
| | $ | 0.28 |
| | $ | 1.95 |
| | $ | 2.00 |
|
| Dividends declared per share | $ | 2.50 |
| | $ | 2.00 |
| | $ | 2.00 |
| | $ | 2.00 |
| | $ | 5.00 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| (in millions) |
|
| Balance Sheet | | | | | | | | | |
| Cash and cash equivalents | $ | 668 |
| | $ | 482 |
| | $ | 736 |
| | $ | 765 |
| | $ | 754 |
|
| Total assets | 3,907 |
| | 3,807 |
| | 4,050 |
| | 3,299 |
| | 3,454 |
|
| Total long-term debt and capital lease obligations, net of current portion | 1,167 |
| | 1,164 |
| | 1,165 |
| | 667 |
| | 667 |
|
| Total liabilities | 2,039 |
| | 2,103 |
| | 2,341 |
| | 1,705 |
| | 1,787 |
|
| Total CVR stockholders’ equity | 1,246 |
| | 919 |
| | 858 |
| | 984 |
| | 988 |
|
| Total equity | 1,868 |
| | 1,704 |
| | 1,710 |
| | 1,601 |
| | 1,675 |
|
December 31, 20182021 | 4537
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition, and results of operations and cash flow should be read in conjunction with our consolidated financial statements and related notes and with the statistical information and financial data included elsewhere in this Report. References to CVR Energy, the Company, “we”, “us”,“we,” “us,” and “our” may refer to consolidated subsidiaries of CVR Energy, including CVR Refining or CVR Partners, as the context may require.
This discussion and analysis covers the years ended December 31, 2021 and 2020 and discusses year-to-year comparisons between such periods. The discussions of the year ended December 31, 2019 and year-to-year comparisons between the years ended December 31, 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on February 23, 2021, and such discussions are incorporated by reference into this Report.
Reflected in this discussion and analysis is how management views the Company’s current financial condition and results of operations along with key external variables and management’s actions that may impact the Company. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Company, address external variables, among others, which will increase users’ understanding of the Company, its financial condition and results of operations. This discussion may contain forward looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report.
Strategy and Goals
Mission and Core Values
Our missionMission is to be a top tier North American renewable fuels, petroleum refining, and nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core values:Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work.
•Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
Safety - We aim to achieve continuous improvement in all environmental, health and safety areas through ensuring our people’s commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures.
Reliability - Our goal is to achieve industry-leading utilization factorsrates at our facilitiesFacilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
Market Capture - We continuously evaluate opportunities to improve the facilities’ netbacksrealized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and a disciplined deployment of capital.
Achievements
We successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing:filing despite the challenges experienced by the industry during 2021 as a result of the continuing COVID-19 pandemic: | | | | | | | | | | | | | | | | | | | | | | | |
| Safety | | Reliability | | Market Capture | | Financial Discipline |
| Corporate: | | | | | | | |
| Achieved reductions in environmental events, process safety management tier 1 incidents and total recordable incident rate of 44%, 50% and 20%, respectively, compared to 2020 | ü | | | | | | |
| Announced and paid a special dividend equivalent to $4.89 per share, including a distribution to our stockholders of substantially all of our investment in Delek US Holdings, Inc. (“Delek”) from which we recognized gains of over $100 million from our initial investment | | | | | | | ü |
| | | | | | | |
| | | | | | | |
| Safety | | Reliability | | Market Capture | | Financial Discipline |
We achieved significant year-over-year improvement in environmental, health and safety areas at all plants.Petroleum Segment: | ü | | ü | | | | |
We consolidated certain back office locations reducing administrative overhead costs. | | | | | | | ü |
Petroleum Segment: | | | | | | | |
We have rationalizedOperated our gathering operations to focus on crude oil produced within closer proximity to the refineries where we have transportation advantages. | | | | | ü | | ü |
We increased our throughput of regional crudessafely and condensate by 38%reliably and 270%, respectively, while reducing reliance on WTI Cushing common crude oil by 30%. | | | | | ü | | ü |
We completed the reversal of our Red River pipeline to deliver SCOOP / STACK barrels to Coffeyville replacing WTI Cushing common barrels. | | | | | ü | | ü |
The Refineries ran at high utilization rates excluding the unplanned downtime in the first quarter of 2018. | ü | | ü | | ü | | ü |
We outlined a multi-year approachAchieved reductions in environmental events and total recordable incident rate of 31% and 44%, respectively, compared to improve crude optionality, market capture and reliability at the Refineries.2020 | ü | | ü | | ü | | ü |
We began the Benfree repositioningReceived Board approval to construct a pretreater at Wynnewood and to complete process design for a potential Renewable Diesel project at the Wynnewood Refinery which should increase liquid yield by 1%. Scheduled completion is currently Q1 2019.Coffeyville | | | ü | | ü | | ü |
We increased our productionCompleted the acquisition of premium gasoline to over 9,000 bpdOklahoma crude oil pipeline in 2018 compared to approximately 6,400 bpd in 2017.February 2021 | | | | | ü | | ü |
We increased internal RIN generation by beginning to blend Biodiesel across refinery racks. | | | | | ü | | ü |
Nitrogen Fertilizer: | | | | | | | |
During 2018, we maintained | | | | | | | |
| Nitrogen Fertilizer: | | | | | | | |
Operated both facilities safely and reliably and at high utilization rates excluding planned downtime at our Coffeyville Facility. | ü | | ü | | ü | | ü |
In the second halfAchieved reductions in environmental events and process safety management tier 1 incidents of 2018, we began loading UAN railcars at a new rail loading rack at our Coffeyville Fertilizer Facility providing unit train capabilities67% and further geographic reach at reduced per ton/mile distribution costs.73%, respectively, compared to 2020 | ü | | | | ü | | ü |
During the second quarter of 2018,Achieved record truck shipments from the Coffeyville Fertilizer Facility completed its planned turnaround on-time and on-budget.in March 2021 | ü | | ü | | ü | | ü |
| | | | | | | | |
We are in the process of implementing a plan to construct and operate a backup oxygen unit | | |
December 31, 2021 | 39
| | | | | | | | | | | | | | | | | | | | | | | |
| Safety | | Reliability | | Market Capture | | Financial Discipline |
| Achieved record ammonia production at the Coffeyville Fertilizer Facility in September 2021 and at the East Dubuque Fertilizer Facility in November 2021 | | | ü | | ü | | |
Utilized downtime throughout the year to reduce impactsproactively complete maintenance work at the Coffeyville Fertilizer Facility, enabling the deferral of third party outages.the planned turnaround from Fall 2021 to Summer 2022 | | | ü | | ü | | ü |
| Increased UAN production capacity at Coffeyville by 100 tons per day through the installation of a CO2 compressor and ammonia pump | | | | | ü | | |
| Reduced CVR Partners’ annual cash interest expense by over 33% through refinancing a substantial portion of the 2023 UAN Notes and subsequently redeeming $30 million of the remaining balance of the 2023 UAN Notes | | | | | | | ü |
| Declared total cash distributions of $9.89 per common unit related to 2021 results | | | | | | | ü |
| | | | | | | |
| | | | | | | |
Environmental, Social & Governance (“ESG”) Highlights
In the past year, we achieved numerous milestones through our commitment to sustainability, including environmental and safety stewardship, diversity and inclusion, community outreach and sound corporate governance. We have also established our ESG Priorities, which will serve as a guide to the development of our ESG strategy and our first ESG Report, which we target for publication in 2022 based on Sustainability Accounting Standards Board standards. The following highlights some key achievements of 2021:
| | | | | | | | | | | | | | |
| Environmental, Health & Safety Stewardship | In our Petroleum Segment | In our Nitrogen Fertilizer Segment |
ü Renewable diesel unit conversion expected to occur in mid-April at the Wynnewood Refinery ü Wynnewood Refinery Feedstock pretreater construction & installation expected to be completed by end of 2022 ü Board approved process design study for the conversion of an existing hydrotreater at Coffeyville Refinery to renewable diesel and sustainable aviation fuel services ü Reduced total recordable incident rate by 44% | ü Mitigated >1mm metric tons of carbon dioxide equivalents (CO2e)/year ü Manufactured hydrogen and ammonia that qualifies as “blue” with carbon capture and sequestration through enhanced oil recovery ü Reduced process safety Tier 1 incident rate by 73% |
| Supporting Our Employees & Contributing to Our Communities | ü Diversity is key component of our Mission & Values ü Site-Level Community Impact Committees steer local contributions, sponsorships and volunteer activities ü Paid time off pursuant to Volunteerism Policy ü Launched Company-wide Diversity & Inclusion training ü Implemented Remote Work Policy supporting employee engagement and retention |
Leadership
Accountability | ü Board-level ESG oversight ü Average tenure of CVR Energy and CVR Partners’ Directors is less than 8 years ü Standing EH&S Committee chaired by independent Director, former Assistant Administrator for Enforcement of the EPA ü Annual Code of Ethics & Business Conduct Acknowledgement for all employees and directors ü More than 75% of CEO Compensation is variable and tied to Company performance |
We make modern life possible through the products we manufacture while contributing to the economic well-being of our employees and the communities where we operate.
December 31, 20182021 | 4740
Industry Factors and Market Conditions
General Business Environment
Throughout 2020 and 2021, the COVID-19 pandemic and actions taken by governments and others in response thereto negatively impacted the worldwide economy, financial markets, and the energy and fertilizer industries. The COVID-19 pandemic also resulted in significant business and operational disruptions, including business closures, liquidity strains, destruction of non-essential demand, as well as supply chain challenges, travel restrictions, stay-at-home orders, and limitations on the availability of the workforce. Vaccination efforts underway domestically and internationally provide promise for a sustained, near-term economic recovery with approximately 76% of the total U.S. population receiving at least one dose of the vaccine and 64% considered fully vaccinated, as of February 10, 2022, according to the U.S. Centers for Disease Control and Prevention. As more businesses resume operations and governmental restrictions are being lifted, there is cautious optimism that the economy will continue to recover into 2022, but it is unknown if or when the economy will return to pre-COVID-19 levels. In addition, the spread of variants of COVID-19 could cause restrictions to continue or be reinstated, which could reverse any recent improvements.
Petroleum Segment
The earnings and cash flows of the petroleum segmentPetroleum Segment are primarily affected by the relationship between refined product prices and the prices for crude oil and other feedstocks that are processed and blended into refined products. The cost to acquire crude oil and other feedstocks and the price for which refined products are ultimately sold depend on factors beyond the petroleum segment’sPetroleum Segment’s control, including the supply of and demand for crude oil, as well as gasoline and other refined products which, in turn, depend on, among other factors, changes in domestic and foreign economies, driving habits, weather conditions, domestic and foreign political affairs, production levels, the availability of imports, the marketing of competitive fuels and the extent of government regulation. Because the petroleum segmentPetroleum Segment applies first-in first-out accounting to value its inventory, crude oil price movements may impact net income in the short term because of changes in the value of its unhedged inventory. The effect of changes in crude oil prices on the petroleum segmentPetroleum Segment results of operations is partially influenced by the rate at which the processprices of refined products adjust to reflect these changes.
The prices of crude oil and other feedstocks and refined products are also affected by other factors, such as product pipeline capacity, system inventory, local market conditions, and the operating levels of competingother refineries. Crude oil costs and the prices of refined products have historically been subject to wide fluctuations. Widespread expansion or upgrades of competitors’ facilities, price volatility, international political and economic developments, and other factors are likely to continue to play an important role in refining industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the refining industry typically experiences seasonal fluctuations in demand for refined products, such as increases in the demand for gasoline during the summer driving season and for volatile seasonal exports of diesel from the United States Gulf Coast markets.
As a result of government actions taken to curb the spread of COVID-19 and significant business interruptions, the demand for gasoline and diesel in the regions in which our Petroleum Segment operates declined substantially beginning at the end of the first quarter of 2020. However, building on recovery signs observed in late 2020, the U.S. market for refined products continued to show signs of recovery throughout 2021. Gasoline demand increased due to increased mobility, which is the main driver for highway travel, while the increase in diesel demand is generally a result of the opening of coastal states such as California, New York, New Jersey, and Florida to global shipping and commerce. The combination of improving demand and declining inventories led to an increase in refined products prices and crack spreads during 2021. Additionally, the U.S. demand for jet fuels has begun to recover, albeit at a slower pace than gasoline and diesel, as international and domestic business and leisure air travel increases. Jet fuel demand is approximately 85% of pre-2020 demand levels. From a global perspective, the U.S. Energy Information Administration (“EIA”) currently expects oil production will increase by more than global oil consumption, resulting in a rise of approximately 182 million barrels in 2022. However, these projections depend on the production decisions of OPEC, U.S. oil production, and the pace of oil demand growth. While the refining market is showing signs of recovery, refinery fleet utilization is still operating at lower rates, and there remains uncertainty as to whether another wave of COVID-19 cases may spur additional governmental restrictions and lock-downs in the future which could decrease the recovery efforts seen thus far in 2021.
In addition to current market conditions there are long-term factors that may impactdiscussed above, we continue to be impacted by significant volatility related to compliance requirements under the demand for refined products. These factors include mandated renewable fuels standards,Renewable Fuel Standard (“RFS”), proposed climate change laws, and regulations and increased mileage standards for vehicles.regulations. The
petroleum business is also subject to the RFS, of the EPA, which, each year, requires blending “renewable fuels” with transportation fuels or purchasepurchasing renewable identification numbers (“RINs”), in lieu of blending, by March 31, 2019 or otherwise be subject to penalties. Our cost to comply with the RFS is dependent upon a variety of factors, which include the availability of ethanol and biodiesel for blending at our refineries and downstream terminals or RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, and the mix of our products, as well as the fuel blending performed at our refineries and downstream terminals, all of which can vary significantly from period to period, as well as certain waivers or exemptions to which we may be entitled. Additionally, our costs to comply with the RFS depend on the consistent and timely application of the program by the Environmental Protection Agency (“EPA”), such as timely establishment of the annual renewable volume obligation (“RVO”). Due to the EPA’s unlawful failure to establish the 2021 and 2022 RVOs by the November 30, 2020 and 2021 statutory deadlines, respectively, the EPA’s delay in issuing decisions on pending small refinery hardship petitions, and the influence exerted and climate change initiatives announced by the Biden administration, among other factors, the price of RINs has been highly volatile and remains high. The price of RINs has also been impacted by the depletion of the carryover RIN bank, as demand destruction during the COVID-19 pandemic resulted in reduced ethanol blending and RIN generation did not keep pace with mandated volumes, requiring carryover RINs from the RIN bank to be used to settle blending obligations. As a result, our costs to comply with RFS (based on the 2020 RVO and proposed preliminary 2021 RVO range, for the respective periods, excluding the impacts of any exemptions or waivers to which the Petroleum Segment may be entitled) increased significantly throughout 2020 and remain significant through 2021. Additionally, the EPA’s unlawful failure to establish the 2021 and 2022 RVOs has made it difficult for regulators to forecast the demand for gasoline, diesel, and jet fuel consumption, which may drive a decrease in the availability and increase the cost of RINs.
On December 7, 2021, the EPA proposed revised 2020, preliminary 2021, and 2022 RVO ranges. In addition, a proposal to deny substantially all pending petitions for SREs was released. Although both of the previously mentioned proposals are not yet final and are pending public comments, these proposals have kept the price of RINs elevated. The EPA’s actions, and unlawful failure to act, as well as the outcome of numerous pending lawsuits relating to the RFS, could materially impact the price of RINs and existing waiver applications. As a result, we continue to expect significant volatility in the price of RINs during 2022 and such volatility could have material impacts on the Company’s results of operations, financial condition and cash flows.
In December 2020, CVR Energy’s board of directors (the “Board”) approved the renewable diesel project at our Wynnewood Refinery, which would convert the Wynnewood Refinery’s hydrocracker to a RDU expected to be capable of producing up to 100 million gallons of renewable diesel per year and approximately 170 to 180 million RINs annually. Currently, total estimated cost for the project is $170 million. Mechanical completion and startup of the RDU is expected to occur in the second quarter of 2022. The production of renewable diesel is expected to significantly reduce our net exposure to the RFS. Further, the RDU should enable us to capture additional benefits associated with the existing blenders’ tax credit currently set to expire at the end of 2022 and growing low carbon fuel standard programs across the country, with programs in place in California and Oregon and new programs anticipated to be implemented over the next few years. In May 2021, the Board approved a $10 million capital expenditure for the completion of the design and ordering of certain long-lead equipment relating to a potential project to add pretreating capabilities for the RDU at Wynnewood and for the completion of the design for a potential conversion of an existing hydrotreater at our refinery in Coffeyville, Kansas (the “Coffeyville Refinery”) to renewable diesel service. In November 2021, the Board approved the pretreater project at the Wynnewood Refinery, which is expected to be completed in the fourth quarter of 2022 at an estimated cost of $60 million. The pretreatment unit should enable us to process a wider variety of renewable diesel feedstocks and untreated soybean and corn oil at the Wynnewood Refinery, most of which have a lower carbon intensity than soybean oil and generate additional low carbon fuel standard credits. When completed, these collective renewable diesel efforts could effectively mitigate a substantial majority, if not all, of our RFS exposure. However, impacts from recent climate change initiatives under the Biden administration, actions taken by the Supreme Court, resulting administration actions under the RFS, and market conditions could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the RFS, if at all. Current plans are to convert the hydrocracker to renewable diesel service beginning in late February 2022, with expectations for the conversion to be complete in mid-April 2022. The Company anticipates the unit to be at full capacity in the second quarter of 2022, processing mainly treated soybean and corn oil.
As of December 31, 2021 and based on the 2020 RVO and proposed preliminary 2021 RVO range, we have an estimated open position (excluding the impacts of any exemptions or waivers to which we may be entitled) under the RFS for both 2020 and 2021 of approximately 370 million RINs, excluding approximately 2 million of net open, fixed-price commitments to purchase RINs, resulting in a potential liability of $494 million. The Company’s open RFS position, which does not consider open commitments expected to settle in future periods, is marked-to-market each period and thus significant market volatility, as experienced in late 2020 and in 2021, results in significant volatility in our RFS expense from period to period. We
recognized an expense of $435 million and $190 million for the years ended December 31, 2021 and 2020, respectively, for the Petroleum Segment’s compliance with the RFS. The increase in 2021 compared to 2020 was driven by the significant increases in RINs pricing through the fourth quarter of 2021 and our open position with respect to both the 2020 and 2021 obligations (excluding the impacts of any exemptions or waivers to which we may be entitled). Of the expense recognized during the years ended December 31, 2021 and 2020, an expense of $63 million and $59 million relates to the revaluation of our net RVO position as of December 31, 2021, respectively. The revaluation represents the summation of the prior period obligation and current period commercial activities, marked at the period end market price. Based upon recent market prices of RINs andin January 2022, current estimates related to the other variable factors, including our anticipated blending and purchasing activities, and the impact of the open RFS positions and resolution thereof, and credits generated by the RDU, our estimated consolidated cost to comply with the RFS (without regard to any SREs we may receive) is $80$200 to $90$210 million for 2019.2022.
Market Indicators
NYMEX WTI crude oil is an industry wide benchmark that is utilized in the market pricing of a barrel of crude oil. The pricing differences between other crudes and WTI, known as differentials, show how the market for other crude oils such as WCS, White Cliffs (“Condensate”), Brent Crude (“Brent”), and Midland WTI (“Midland”) are trending. Due to the COVID-19 pandemic, actions taken by governments and others in response thereto, refined product prices have experienced extreme volatility. As a result of the current environment, refining margins have been and could continue to be significantly reduced.
As a performance benchmark and a comparison with other industry participants, we utilize NYMEX and Group 3 crack spreads. These crack spreads are a measure of the difference between market prices for crude oil and refined products and are a commonly used proxy within the industry to estimate or identify trends in refining margins. Crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances. The NYMEX 2-1-1 crack spread is calculated using two barrels of WTI producing one barrel of NYMEX RBOB Gasoline (“RBOB”) and one barrel of NYMEX NY Harbor ULSD (“HO”). The Group 3 2-1-1 crack spread is calculated using two barrels of WTI crude oil producing one barrel of Group 3 sub-octane gasoline and one barrel of Group 3 ultra-low sulfur diesel.
Both NYMEX 2-1-1 and Group 3 2-1-1 crack spreads increased during 2021 compared to 2020. The NYMEX 2-1-1 crack spread averaged $19.45 per barrel in 2021 compared to $11.73 per barrel in 2020. The Group 3 2-1-1 crack spread averaged $18.14 per barrel in 2021 compared to $9.41 per barrel in 2020. The benefit realized from increased cracks was partially offset by a substantial increase in RINs prices. Average monthly prices for RINs increased 170% during 2021 compared to 2020. On a blended barrel basis (calculated using applicable RVO percentages), RINs approximated $6.71 per barrel during 2021 compared to $2.48 per barrel during 2020.
December 31, 20182021 | 4843
2018 Market Conditions
The tables below show relevant market indicators for the petroleum segment,are presented, on a per barrelsbarrel basis, for the years endedby month through December 31, 2018,2017, and 2016:2021:
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(1)The change over time in NYMEX - WTI, as reflected in the tablecharts above, is illustrated below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in $/bbl) | Average 2019 | | Average December 2019 | | Average 2020 | | Average December 2020 | | Average 2021 | | Average December 2021 |
| WTI | $ | 57.03 | | | $ | 61.06 | | | $ | 39.34 | | | $ | 47.07 | | | $ | 68.11 | | | $ | 71.69 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in $/bbl) | Average 2016 | | At December 31, 2016 | | Average 2017 | | At December 31, 2017 | | Average 2018 | | At December 31, 2018 |
| WTI | $ | 43.32 |
| | $ | 52.17 |
| | $ | 50.95 |
| | $ | 57.95 |
| | $ | 64.77 |
| | $ | 48.98 |
|
_____________________________(2)Information used in thewithin these charts was obtained from MarketView.reputable market sources, including the New York Mercantile Exchange (“NYMEX”), Intercontinental Exchange, and Argus Media, among others.
Nitrogen Fertilizer Segment
InWithin the nitrogen fertilizer segment,Nitrogen Fertilizer Segment, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, rates,and operating costs and expenses.expenses, including pet coke and natural gas feedstock costs.
The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products, which, in turn, depends on, among other factors, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, local market conditions, operating levels of competing facilities, weather conditions, the availability of imports, impacts of foreign imports and foreign subsidies thereof, and the extent of government intervention in agriculture markets.
Nitrogen fertilizer prices are also affected by local factors, including local market conditions and the operating levels of competing facilities. An expansion or upgrade of competitors’ facilities, new facility development, political and economic developments and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.
As a result of the overall decline in global demand for liquid transportation fuels driven by the broader impacts of the COVID-19 pandemic and actions taken by the government to mitigate its spread, ethanol production, which is a significant driver of demand for corn and therefore fertilizer, declined during 2020. However, as restrictions eased during 2021, demand for ethanol for fuels blending has largely recovered to pre-COVID-19 levels, although an increase in outbreaks of any variant of COVID-19 could reverse this recovery.
Market Indicators
While there is risk of short-termshorter-term volatility given the inherent nature of the commodity cycle, the Company believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The nitrogen fertilizer segmentNitrogen Fertilizer Segment views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve will continue toshould provide a solid foundation for nitrogen fertilizer producers in the U.SU.S. over the longer term.
December 31, 20182021 | 5045
Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as “N fixation.” As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident through the chart presented below for 2021, 2020, and 2019.
The relationship between the total acres planted for both corn and soybean has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 11 billion pounds of soybean oil is expected to be used in producing cleaner biodiesel in marketing year 2021/2022. Multiple refiners have announced renewable diesel expansion projects for 2022 and beyond, which will only increase the demand for soybeans and potentially for corn and canola. Due to the uncertainty of how these factors will truly affect the grain markets, it is not yet known how the nitrogen business will be impacted.
2018 Market Conditions
The 2021 United States Department of Agriculture (“USDA”) reports on corn and soybean acres planted indicated farmers planted 93.4 million acres of corn, representing a slight increase of 3.0% in corn acres planted as compared to 90.7 million corn acres in 2020. Planted soybean acres are estimated to be 87.2 million acres, representing a 4.6% increase in soybean acres planted as compared to 83.4 million soybean acres in 2020. The combined corn and soybean planted acres of 180.6 million is the highest in history. Based on current grain inventories and crop prices, farm economics are expected to continue to be very attractive in 2022. Further, while natural gas prices, the primary input for nitrogen fertilizer production, were at historical lows across the world in 2020, they have escalated significantly since the summer of 2021, reducing the incentive to maximize production at nitrogen fertilizer production facilities.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There was a decline in ethanol demand that began in 2020 and continued through 2021 due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol demand did not alter the spring 2021 planting decisions by farmers, as evidenced through the charts below.
(1)Information used within this chart was obtained from the EIA.
(2)Information used within this chart was obtained from the USDA, National Agricultural Statistics Services.
Weather continues to be a critical variable for crop production. Grain prices rose significantly from the summer of 2020 into the spring of 2021, leading to higher planted acreage for corn and soybeans. Even with higher planted acres and trendline yields per acre, inventory levels for corn and soybeans remain below historical levels and prices have remained elevated. The tablehigher grain prices and historically low crop inventories are leading to strong farm economics in advance of spring 2022. These conditions are expected to drive strong demand for nitrogen fertilizer, as well as other crop inputs.
Fertilizer prices have risen significantly since January 1, 2021 due to strong grain prices, the strong spring 2021 planting season, lower fertilizer supply due to nitrogen fertilizer production outages during Winter Storm Uri and Hurricane Ida and significant escalation in global feedstock costs for nitrogen fertilizer production, and other factors discussed above.
On June 30, 2021, CF Industries Nitrogen, L.L.C., Terra Nitrogen, Limited Partnership, and Terra International (Oklahoma) LLC filed petitions with the U.S. Department of Commerce (“USDOC”) and the U.S. International Trade Commission (the “ITC”) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad and Tobago (“Trinidad”). In August 2021, the U.S. Department of Commerce decided to pursue an investigation to determine the extent of dumping and unfair subsidies associated with imports from Russia and Trinidad, and the ITC initiated a concurrent investigation to determine whether such imports materially injure the U.S. industry. On November 30, 2021, USDOC determined that UAN imports from Russia are unfairly subsidized at rates ranging from 9.66% to 9.84% and UAN imports from Trinidad are unfairly subsidized at a rate of 1.83%. On November 30, 2021, USDOC determined that UAN imports from Russia are unfairly subsidized at rates ranging from 9.66% to 9.84% and UAN imports from Trinidad are unfairly subsidized at a rate of 1.83%. On January 27, 2022, USDOC found that Russian UAN imports are sold at less than fair value into the U.S. market at rates ranging from 9.15% to 127.19%, and that Trinidadian UAN imports at a rate of 63.08%. As a result of these determinations, USDOC will impose cash deposit requirements on imports of UAN from Russia and Trinidad, based on the preliminary rates of antidumping duties. We believe that if the antidumping and countervailing duty preliminary determinations are confirmed by USDOC, there will likely be lower amounts of imported UAN from Russia and Trinidad.
The tables below showsshow relevant market indicators for the nitrogen fertilizer segmentNitrogen Fertilizer Segment by month through December 31, 2021:
(1)Information used within these charts was obtained from various third-party sources including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others.
Results of Operations
Consolidated
The following sections should be read in conjunction with the information outlined within the previous sections of this Part II, Item 7 and the consolidated financial statements and related notes thereto in Part II, Item 8 of this Report. Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and therefore do not equal the sum of the operating results of the Petroleum and Nitrogen Fertilizer Segments.
Consolidated Financial Highlights
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measure shown above.
Overview - The Company’s operating income and net income were $87 million and $74 million, respectively, for the year ended December 31, 2021, increases of $420 million and $394 million, respectively, compared to an operating loss and net loss of $333 million and $320 million, respectively, for the year ended December 31, 2020. Theseincreases were driven by an improvement in operating loss of $254 million within the Petroleum Segment and $169 million within the Nitrogen Fertilizer Segment for the year ended December 31, 2021 compared to December 31, 2020. Refer to our discussion of each segment’s results of operations below for further information.
Investment Income from Marketable Securities - During the first quarter of 2020, we acquired a 14.9% ownership interest in Delek US Holdings, Inc. (“Delek”) (NYSE: DK). On June 10, 2021, the Company distributed substantially all of its holdings in Delek, of which the Company was the largest stockholder holding approximately 14.3% of Delek’s outstanding common stock, as part of a special dividend. As of December 31, 2021, the Company continued to hold other marketable securities of
Delek, but divested these remaining interests in January 2022. Prior to the special dividend in 2021, we received no dividend income compared to $7 million of dividend income received for the year ended December 31, 2020. The Company recognized a gain of $81 million for the year ended December 31, 2021, compared to an unrealized gain based on market pricing on December 31, 2020 of $34 million for the year ended December 31, 2020.
Income Tax Expense - The income tax benefit for the year ended December 31, 2021 was $8 million, or (12.4)% of income before income taxes, as compared to income tax benefit for the year ended December 31, 2020 of $95 million, or 23.0% of loss before income taxes. The fluctuation in income tax benefit was due primarily to changes in pretax earnings and pretax earnings attributable to noncontrolling interests between all periods presented. In addition, the change in the effective tax rate was due primarily to reductions in state income tax rates enacted during 2021, changes in pretax earnings attributable to noncontrolling interests and impacts of state income tax credits generated between all periods presented.
Segment Financial Highlights and Results of Operations
Petroleum Segment
The Petroleum Segment utilizes certain inputs within its refining operations. These inputs include crude oil, butanes, natural gasoline, ethanol, and bio-diesel (these are also known as “throughputs”).
Refining Throughput and Production Data by Refinery
| | | | | | | | | | | | | | | | | |
| Throughput Data | Year Ended December 31, |
| (in bpd) | 2021 | | 2020 | | 2019 |
| Coffeyville | | | | | |
| Regional crude | 27,133 | | | 34,652 | | | 49,093 | |
| WTI | 62,694 | | | 51,656 | | | 67,382 | |
| WTL | 511 | | | — | | | 473 | |
| Midland WTI | 452 | | | — | | | 3,888 | |
| Condensate | 7,911 | | | 8,243 | | | 4,331 | |
| Heavy Canadian | 3,684 | | | 1,020 | | | 4,711 | |
| | | | | |
| Other Crude Oil | 19,129 | | | 5,151 | | | — | |
| Other feedstocks and blendstocks | 10,788 | | | 8,321 | | | 9,160 | |
| Wynnewood | | | | | |
| Regional crude | 60,287 | | | 56,932 | | | 53,848 | |
| WTI | — | | | — | | | 3 | |
| WTL | 3,430 | | | 6,235 | | | 668 | |
| Midland WTI | 2,107 | | | 1,262 | | | 10,995 | |
| Condensate | 7,360 | | | 6,207 | | | 7,666 | |
| | | | | |
| | | | | |
| Other Crude Oil | 202 | | | — | | | — | |
| Other feedstocks and blendstocks | 3,396 | | | 3,616 | | | 3,753 | |
| Total throughput | 209,084 | | | 183,295 | | | 215,971 | |
| | | | | | | | | | | | | | | | | |
| Production Data | Year Ended December 31, |
| (in bpd) | 2021 | | 2020 | | 2019 |
| Coffeyville | | | | | |
| Gasoline | 71,070 | | | 59,419 | | | 71,817 | |
| Distillate | 53,441 | | | 43,209 | | | 57,549 | |
| Other liquid products | 4,481 | | | 3,999 | | | 5,810 | |
| Solids | 4,246 | | | 3,073 | | | 4,573 | |
| Wynnewood | | | | | |
| Gasoline | 39,858 | | | 38,640 | | | 38,864 | |
| Distillate | 31,662 | | | 30,638 | | | 32,380 | |
| Other liquid products | 2,862 | | | 2,629 | | | 3,223 | |
| Solids | 21 | | | 25 | | | 30 | |
| Total production | 207,641 | | | 181,632 | | | 214,246 | |
| | | | | | | | | | | | | | | | | |
Light product yield (as % of crude throughput) (1) | 100.6 | % | | 100.3 | % | | 98.8 | % |
Liquid volume yield (as % of total throughput) (2) | 97.3 | % | | 97.4 | % | | 97.1 | % |
Distillate yield (as % of crude throughput) (3) | 43.7 | % | | 43.1 | % | | 44.3 | % |
(1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL, Midland WTI, Condensate, and Heavy Canadian throughput.
(2)Total Gasoline, Distillate, and Other liquid products divided by total throughput.
(3)Total Distillate divided by total Regional crude, WTI, WTL, Midland WTI, Condensate, and Heavy Canadian throughput.
Financial Highlights
Overview - Petroleum Segment operating loss and net income for the year ended December 31, 2021 were $27 million and $4 million, respectively, an improvement of $254 million and $275 million, respectively, compared to an operating loss and net loss of $281 million and $271 million, respectively, for the year ended December 31, 2020. The improvement in both operating loss and net income compared to the prior period was primarily a result of favorable refining margins resulting from improved crack spreads and inventory pricing in the current period, partially offset by increased RFS compliance costs.
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measure shown above.
Net Sales - For the year ended December 31, 2021, net sales for the Petroleum Segment increased by $3.1 billion when compared to the year ended December 31, 2020. This improvement was primarily related to regional inventory draws, which are driven by increased demand and, as a result, increased market pricing, as Group 3 2-1-1 crack spreads improved $8.73 for the year ended December 31, 2021 compared to the year ended December 31, 2020. Further, 2020 was impacted by a full planned turnaround at the Coffeyville Refinery, which began in February 2020, as well as reduced utilization of the Wynnewood Refinery during the same quarter given the significant gasoline demand reductions experienced late in the first quarter of 2020 as a result of the COVID-19 pandemic.
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Refining Margin - For the year ended December 31, 2021, refining margin was $621 million, or $8.14 per throughput barrel, as compared to $298 million, or $4.44 per throughput barrel, for the year ended December 31, 2020. The increase in refining margin of $323 million was primarily driven by the 93% increase in the Group 3 2-1-1 crack spread caused by market improvements in 2021 as market demand for refined products improved compared to the economic downturn and demand destruction observed in 2020. This was combined with favorable inventory valuation impacts totaling $127 million, or $1.66 per total throughput barrel driven by increased prices for crude oil and refined products in 2021 compared to 2020. The unfavorable inventory valuation impacts of $58 million in 2020 were driven by lower crude oil prices in the first half of 2020 with some offsetting increases observed through the end of 2020. Offsetting these improvements to refining margin, the Company recognized RINs expense of $435 million, or $5.70 per throughput barrel, and $190 million, or $2.84 per throughput barrel, for the years ended December 31, 2016,2017,2021 and 2018:
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(1)Information used2020, respectively, reflecting our costs to comply with RFS. The increase in 2021 is primarily related to significantly higher RIN prices during the charts was obtained from various third party sources including MartketView and the U.S. Energy Information Administration (“EIA”), amongst others.
year ended December 31, 20182021 caused by price volatility
for RINs and our open mark-to-market position for the 2020 compliance year of approximately 130 million RINs as of December 31, 2021. This was combined with derivative losses of $44 million recognized during the year ended December 31, 2021, a result of unfavorable crack spread swaps, partially offset by gains on WCS sales, compared to derivative gains of $55 million recognized during the year ended December 31, 2020, primarily resulting from WCS sales.
(1)Exclusive of depreciation and amortization expense.
Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the year ended December 31, 2021, direct operating expenses (exclusive of depreciation and amortization) were $369 million and $319 million for the years ended December 31, 2021 and 2020, respectively. The increase in the current period was primarily due to increased natural gas costs and share-based compensation. On a total throughput barrel basis, direct operating expenses increased to $4.83 per barrel from $4.76 per barrel, as a function of the increased expense in 2021, partially offset by the increase in total throughput in 2021 compared to 2020. Impacts of COVID-19 related factors and the Coffeyville Refinery’s full, planned turnaround, which began the last week of February 2020 and extended into mid-April 2020, significantly decreased throughput in 2020.
Selling, General, and Administrative Expenses, and Other - For the year ended December 31, 2021, selling, general and administrative expenses and other was $76 million compared to $58 million for the year ended December 31, 2020. The increase was primarily a result of increased personnel costs driven primarily by increased share-based and incentive-based compensation in 2021 as compared to 2020.
Nitrogen Fertilizer Segment
Utilization and Production Volumes - The following tables summarize the ammonia utilization at the Nitrogen Fertilizer Segment’s facility in Coffeyville, Kansas (the “Coffeyville Fertilizer Facility”) and East Dubuque, Illinois facility (the “East
Dubuque Fertilizer Facility”). Utilization is an important measure used by management to assess operational output at each of the Nitrogen Fertilizer Segment’s facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity adjusted for planned maintenance and turnarounds.
Utilization is presented solely on ammonia production, rather than each nitrogen product, as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With efforts primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate.
Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. Production for the year ended December 31, 2021 was impacted by downtime associated with the Messer air separation plant at the Coffeyville Fertilizer Facility during the months of January, June, August, October, and November of 2021 (the “Messer Outages”), downtime at the East Dubuque Fertilizer Facility due to Winter Storm Uri in February 2021, downtime at the Coffeyville Fertilizer Facility and East Dubuque Fertilizer Facility in July and September 2021, respectively, due to externally driven power outages (the “Power Outages”), and downtime at the East Dubuque Fertilizer Facility in October 2021 for an R2 repair (the “R2 Outage”). The table below presents these Nitrogen Fertilizer Segment metrics for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
| Consolidated Ammonia Utilization | | | | | 92 | % | | 98 | % | | 92 | % |
| | | | | | | | | |
Production Volumes (in thousands of tons) | | | | | | | | | |
| Ammonia (gross produced) | | | | | 807 | | | 852 | | 766 |
| Ammonia (net available for sale) | | | | | 275 | | | 303 | | 223 |
| UAN | | | | | 1,208 | | | 1,303 | | 1,255 |
On a consolidated basis, the Nitrogen Fertilizer Segment’s utilization decreased 6% to 92% for the year ended December 31, 2021 compared to the year ended December 31, 2020. This decrease was primarily due to the Messer Outages, Winter Storm Uri, the Power Outages, and the R2 Outage.
Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment’s key operating metrics are total sales for ammonia and UAN along with the product pricing per ton realized at the gate. Total product sales volumes were unfavorable, driven by lower production due to the Messer Outages, Winter Storm Uri, the Power Outages, and the R2 Outage. For the year ended December 31, 2021, the lower sales volumes were more than offset by improved prices of 92% for ammonia and 74% for UAN. Ammonia and UAN sales prices were favorable primarily due to higher crop pricing coupled with lower fertilizer supply driven by production outages from Winter Storm Uri in February 2021 and Hurricane Ida in August and September 2021, as well as increased industry turnaround activity and lower global fertilizer production due to higher natural gas prices in Europe and Asia. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry.
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | 2019 | | |
| Consolidated sales (thousand tons) | | | | | | | |
| Ammonia | 269 | | | 332 | | | 241 | | | |
| UAN | 1,196 | | | 1,312 | | | 1,261 | | | |
| | | | | | | |
| Consolidated product pricing at gate (dollars per ton) | | | | | | | |
| Ammonia | $ | 544 | | | $ | 284 | | | $ | 392 | | | |
| UAN | 264 | | | 152 | | | 199 | | | |
Feedstock - Our Coffeyville Fertilizer Facilityutilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Fertilizer Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities within the Nitrogen Fertilizer Segment for the years ended December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Pet coke used in production (thousand tons) | 514 | | | 523 | | | 535 | |
Pet coke (dollars per ton) | $ | 44.69 | | | $ | 35.25 | | | $ | 37.47 | |
Natural gas used in production (thousands of MMBtu) (1) | 8,049 | | | 8,611 | | | 6,856 | |
Natural gas used in production (dollars per MMBtu) (1) | $ | 3.95 | | | $ | 2.31 | | | $ | 2.88 | |
Natural gas in cost of materials and other (thousands of MMBtu) (1) | 7,848 | | | 9,349 | | | 6,961 | |
Natural gas in cost of materials and other (dollars per MMBtu) (1) | $ | 3.83 | | | $ | 2.35 | | | $ | 3.08 | |
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of natural gas used for fuel is included in Direct operating expenses (exclusive of depreciation and amortization).
Financial Highlights
Overview - The Nitrogen Fertilizer Segment’s operating income and net income for the year ended December 31, 2021 were $134 million and $78 million, respectively, improvements of $169 million and $176 million, respectively, compared to an operating loss and net loss of $35 million and $98 million, respectively, for the year ended December 31, 2020. Beyond the goodwill impairment of $41 million negatively impacting the 2020 period, these improvements were driven primarily by higher ammonia and UAN sales prices in 2021, partially offset by higher feedstock costs and operating expenses.
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measure shown above.
Net Sales - The Nitrogen Fertilizer Segment’s net sales increased by $183 million to $533 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.This increase wasprimarily due to favorable sales pricing contributing $205 million in higher revenues, offset by decreased sales volumes, resulting in $35 million of lower revenue as compared to the year ended December 31, 2020. For the years ended December 31, 2021 and 2020, net sales included $31 million and $33 million in freight revenue, respectively, and $11 million and $10 million in other revenue, respectively.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding urea products, freight, and other revenue, for the year ended December 31, 2021 as compared to the year ended December 31, 2020.
| | | | | | | | | | | |
| (in millions) | Price Variance | | Volume Variance |
| UAN | $ | 135 | | | $ | (17) | |
| Ammonia | 70 | | | (18) | |
For the year ended December 31, 2021 compared to the year ended December 31, 2020, ammonia and UAN sales prices were favorable primarily due to higher crop pricing coupled with lower fertilizer supply driven by production outages from Winter Storm Uri in February 2021 and Hurricane Ida in August and September 2021, as well as increased industry turnaround activity and lower global fertilizer production due to higher natural gas prices in Europe and Asia during 2021. Total product sales volumes were unfavorable driven by lower production due to the Messer Outages, Winter Storm Uri, the Power Outages, and the R2 Outage.
Cost of Materials and Other - Cost of materials and other for the year ended December 31, 2021 was $98 million, compared to $91 million for the year ended December 31, 2020. The $7 million increase was comprised primarily of a $12 million increase in natural gas costs at our East Dubuque Fertilizer Facility due to higher natural gas prices, a $5 million increase in pet coke costs at our Coffeyville Fertilizer Facility related to higher third-party coke pricing caused by higher crude oil prices and higher pet coke pricing with Coffeyville Resources Refining & Marketing, LLC due to the UAN-indexed pricing formula, and a $2 million increase in purchases of hydrogen. These increases were offset by a decrease in freight expenses and distribution costs of $4 million due to downtime in October and November 2021 and a discontinuation of the Gavilon Railcar Lease in April 2021, a decrease related to a build in our ammonia and UAN inventories contributing $4 million, and a decrease in ammonia purchases of $3 million.
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
As a result of volatile market conditions related to the fourth quarterRFS during the first half of 2018, management revised its internal2021 and external usethe impacts certain significant non-cash items have on the evaluation of non-GAAP measures. Earnings before interest, tax, depreciation and amortization (“EBITDA”) is now reconciled from net income (loss).our operations, the Company began disclosing Adjusted EBITDA, as defined below, was revisedin the second quarter of 2021. We believe the presentation of this non-GAAP measure is meaningful to remove adjustments for (i) first-in-first-out inventory impacts, (ii) derivative gains or losses,compare our operating results between periods and (iii) business interruption insurance recoveries. Additionally, duepeer companies. All prior periods presented have been conformed to the revisions to Adjusted EBITDA to remove certain adjustments,definition below. The following are non-GAAP measures we revisedpresent for the definitions of our Refining Margin and Direct Operating Expense metrics in our Petroleum segment to conform. Refer to the revised definitions below for further information.year ended December 31, 2021:
EBITDA - Consolidated net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Petroleum EBITDA and Nitrogen Fertilizer EBITDA - Segment net income (loss) before segment (i) interest expense, net, (ii) income tax expense (benefit), and (iii) depreciation and amortization.
Adjusted EBITDA - EBITDA adjusted to exclude consolidated turnaround expense and other non-recurring items which management believes are material to an investor’s understanding of the Company’s underlying operating results.
Petroleum Adjusted EBITDA and Nitrogen Fertilizer Adjusted EBITDA - Segment EBITDA adjusted to exclude turnaround expense attributable to each segment and other non-recurring segment items which management believes are material to an investor’s understanding of the Petroleum or Nitrogen Fertilizer segments’ underlying operating results.
Adjusted net income (loss) is not a recognized term under GAAP and should not be substituted for net income as a measure of our performance, but rather should be utilized as a supplemental measure of financial performance in evaluating our business. Management believes that adjusted net income (loss) provides relevant and useful information that enables external users of our financial statements, such as industry analysts, investors, lenders and rating agencies, to better understand and evaluate our ongoing operating results and allow for greater transparency in the review of our overall financial, operational and economic performance. Adjusted net income (loss) per diluted share represents adjusted net income (loss) divided by the weighted-average diluted shares outstanding. Adjusted net income (loss) represents net income, as adjusted, that is attributable to CVR Energy stockholders.
Refining Margin - The difference between our Petroleum Segment net sales and cost of materials and other.
Refining Margin, excludingadjusted for Inventory Valuation Impacts - Refining Margin adjusted to exclude the impact of current period market price and volume fluctuations on crude oil and refined product inventories recognizedpurchased in prior periods.periods and lower of cost or net realizable value adjustments, if applicable. We record our commodity inventories on the first-in-first-out basis. As a result, significant current period fluctuations in market prices and the volumes we hold in inventory can have favorable or unfavorable impacts on our refining margins as compared to similar metrics used by other publicly-traded companies in the refining industry.
Refining Margin and Refining Margin excludingadjusted for Inventory Valuation Impacts,per Total Throughput Barrel - Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts divided by the total throughput barrels during the period, which is calculated as total throughput barrels per day times the number of days in the period.
Direct Operating Expenses per Throughput Barrel - Direct operating expenses for our Petroleum Segment divided by total throughput barrels for the period, which is calculated as total throughput barrels per day times the number of days in the period.
Direct Operating ExpensesAdjusted EBITDA, Adjusted Petroleum EBITDA and Adjusted Nitrogen Fertilizer EBITDA - EBITDA, Petroleum EBITDA and Nitrogen Fertilizer EBITDA adjusted for certain significant non-cash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Adjusted Earnings (Loss) per Share - Earnings (loss) per share adjusted for certain significant non-cash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends.
Free Cash Flow - Net cash provided by (used in) operating activities less capital expenditures and capitalized turnaround expenditures.
Net Debt and Finance Lease Obligations - Net debt and finance lease obligations is total debt and finance lease obligations reduced for cash and cash equivalents.
Total Throughput Barrel, excluding Turnaround ExpenseDebt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer - Direct operating expenses for our Petroleum segment, excluding turnaround expenses reported as direct operating expense, divided by total throughput barrels for the period, whichTotal debt and net debt and finance lease obligations is calculated as total throughput barrels per day times the numberconsolidated debt and net debt and finance lease obligations less the Nitrogen Fertilizer Segment’s debt and net debt and finance lease obligations as of days in the most recent period ended divided by EBITDA exclusive of the Nitrogen Fertilizer Segment for the most recent twelve-month period.
We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to our operating performance as compared to other publicly-traded companies in the refining industry,and fertilizer industries, without regard to historical cost basis or financing methods and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. See “Non-GAAP Reconciliations” section“Non-GAAP Reconciliations” included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
ItemsDecember 31, 2021 | 56
Factors Affecting Comparability of Our Financial Results
Our historical results of operations for the periods presented may not be comparable with prior periods or Events Impacting Comparabilityto our results of operations in the future for the reasons discussed below.
ReferPetroleum Segment
Major Scheduled Turnaround Activities
Coffeyville Refinery - The Coffeyville Refinery’s next planned turnaround is expected to start in the spring of 2023, with pre-planning expenditures of $5 million expected to be incurred during 2022. During the year ended December 31, 2020, we capitalized costs of $155 million related to the “Non-GAAP Measures” section above for discussion of the changes made duringplanned turnaround which began in February 2020 and was completed in April 2020. During the fourth quarter of 2018 to the Company’s definition of certain non-GAAP measures.
Petroleum Segment
Starting with the fourth quarter of 2018, derivative gains or losses are now presented within Cost of Materials and Other. Prior period amounts have been conformed to the current presentation.
2019, our Coffeyville Refinery capitalized costs of $15 million related to preparations for the same planned turnaround.
Wynnewood Refinery -The next planned turnaround for the Wynnewood Refinery is in the spring of 2022. During the years ended December 31, 2021, we capitalized $7 million related to pre-planning activities at the Wynnewood Refinery. During the first quarter of 2018, our Coffeyville, Kansas refinery (the “Coffeyville Refinery”) experienced an outage with its fluid catalytic cracking unit (“FCC”) lasting 48 days. The FCC outage had a significant negative impact on production and sales during that period.
Wynnewood Refinery - During 2017, the Wynnewood, Oklahoma (“Wynnewood Refinery”) underwent a turnaround on its hydrocracking unit in the first quarter of 2017 at a cost of $13 million and the first phase of its planned facility turnaround, with2019, the second phase scheduledof the fourth quarter 2017 turnaround on the Wynnewood Refinery hydrocracking unit was completed and $24 million was capitalized.
Nitrogen Fertilizer Segment
Major Scheduled Turnaround Activities
Coffeyville Fertilizer Facility - The next planned turnaround at the Coffeyville Fertilizer Facility is expected to occur in the summer of 2022. Additionally, the Coffeyville Fertilizer Facility had planned downtime for the first quarter of 2019, at a cost of approximately $67 million, including $43 millioncertain maintenance activities, which was completed in the fourth quarter of 2017.
Nitrogen Fertilizer Segment
During the fourth quarter2021 at a cost of 2018, the Partnership recognized a $6 million business interruption insurance recovery associated with an outage at its Coffeyville, Kansas facility (the “Coffeyville Facility”) during 2017. The recovery is recorded in the Other Income (Expense) line item. Prior year amounts, which were not material, were conformed to the current year presentation.
Coffeyville Facility - During 2018, our Coffeyville, Kansas nitrogen fertilizer facility (the “Coffeyville Facility”) had a planned, full facility turnaround lasting 15 days and incurred approximately $6 million in turnaround expense in the second quarter of 2018. During 2017, the Coffeyville Facility’s third-party air separation unit experienced a shut down. Paired with this shut down and subsequent operational challenges, the Coffeyville Facility experienced unplanned UAN downtime of 11 days during the second quarter of 2017.
East Dubuque Facility - During 2017, our East Dubuque, Illinois nitrogen fertilizer facility (the “East Dubuque Facility”) had a planned, full facility turnaround lasting 14 days and incurred approximately $3 million in turnaround expense in the third quarter of 2017. Additionally, during the fourth quarter of 2017, the East Dubuque Facility experienced unplanned downtime totaling 12 days.
Results of Operations
Consolidated
The following sections should be read in conjunction with the information outlined in the previous sections of this Item 7 and the financial statements and related notes thereto in Item 8. Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and therefore do not equal the sum of the operating results of the petroleum and nitrogen fertilizer segments.
Consolidated Financial Highlights
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Operating Income (Loss) by Segment
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Petroleum | $ | 599 |
| | $ | 134 |
| | $ | 58 |
|
| Nitrogen Fertilizer | 6 |
| | (10 | ) | | 26 |
|
| Other | (18 | ) | | (17 | ) | | (14 | ) |
| Consolidated | $ | 587 |
| | $ | 107 |
| | $ | 70 |
|
EBITDA by Segment (1)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Petroleum | $ | 742 |
| | $ | 269 |
| | $ | 187 |
|
| Nitrogen Fertilizer | 84 |
| | 64 |
| | 80 |
|
| Other | (11 | ) | | (10 | ) | | (2 | ) |
| Consolidated | $ | 815 |
| | $ | 323 |
| | $ | 265 |
|
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Overview - Net income attributable to CVR Energy increased by $54 million, or $0.42 per share, from 2017 to 2018 due to significantly improved segment market conditions and operations during 2018 which contributed $479 million of additional operating income year-over-year. These results were offset by an increase in tax expense of $306 million and $140 million in higher earnings attributable to noncontrolling interest given the better results at our business segments. Refer to our detailed discussion of the Petroleum and Nitrogen Fertilizer Segments contained in this section.
Income Taxes - In December 2017, we recognized a $201 million tax benefit associated with the remeasurement of our deferred tax liabilities upon the enactment of the Tax Cut and Jobs Act (the “Tax Act”), resulting in a total tax benefit of $217 million for 2017. In 2018, we recognized $89 million in tax expense for an effective tax rate of 17.8%. Our effective tax rate was lower than prior years due to the reduction in statutory tax rate as part of the Tax Act.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Overview - Net income attributable to CVR Energy increased by $210 million, or $2.42 per share, from 2016 to 2017 due to improved operating income driven primarily by an increase of $76 million in the Petroleum Segment offset by a decrease of $36 million in the Nitrogen Fertilizer Segment. The net operational improvement was further aided by an increased tax benefit of $197 million while being offset by $26 million in increased interest costs. Refer to our detailed discussion of the Petroleum and Nitrogen Fertilizer Segments contained in this section.
Interest Expense - Our 2017 results included $26 million in additional interest costs compared to 2016 due to the full year of interest on the debt incurred for the acquisition of our East Dubuque Fertilizer Facility in April 2016.
Income Taxes - In December 2017, we recognized a $200 million benefit associated with the remeasurement of our deferred tax liabilities upon the enactment of the Tax Act. No such benefit was recognized in 2016.
Petroleum Segment
Refining Throughput and Production Data by Refinery
During the three months ended December 31, 2018, management revised its internal and external approach to calculating refinery throughput and production data to include ethanol and biodiesel consumed at the refineries. We believe this revised calculation of refinery throughput and production data is appropriate as it conveys more accurate data reflecting each refinery’s operational performance for the period. Prior year balances have been conformed with the current year calculation. The adjustments to the calculation of refinery throughput and production had an immaterial impact on the data presented.
|
| | | | | | | | |
| Throughput Data | Year Ended December 31, |
| (in bpd) | 2018 | | 2017 | | 2016 |
| Coffeyville | | | | | |
| Regional crude | 31,350 |
| | 34,805 |
| | 38,386 |
|
| WTI | 66,952 |
| | 84,460 |
| | 57,937 |
|
| Midland WTI | 15,893 |
| | — |
| | — |
|
| Condensate | 4,992 |
| | 2,169 |
| | 8,356 |
|
| Heavy Canadian | 5,302 |
| | 10,135 |
| | 19,491 |
|
| Other feedstocks and blendstocks | 8,369 |
| | 9,921 |
| | 9,264 |
|
| Wynnewood | | | | | |
| Regional crude | 54,746 |
| | 27,750 |
| | 24,504 |
|
| WTI | 2,354 |
| | 15,251 |
| | 18,592 |
|
| Midland WTI | 10,332 |
| | 29,045 |
| | 30,157 |
|
| Condensate | 7,237 |
| | 1,134 |
| | 621 |
|
| Heavy Canadian | — |
| | — |
| | — |
|
| Other feedstocks and blendstocks | 5,068 |
| | 3,511 |
| | 3,164 |
|
| Total throughput | 212,595 |
| | 218,181 |
| | 210,472 |
|
|
| | | | | | | | |
| Production Data | Year Ended December 31, |
| (in bpd) | 2018 | | 2017 | | 2016 |
| Coffeyville | | | | | |
| Gasoline | 67,091 |
| | 72,778 |
| | 70,114 |
|
| Distillate | 56,307 |
| | 59,593 |
| | 55,790 |
|
| Other liquid products | 5,737 |
| | 4,704 |
| | 2,708 |
|
| Solids | 5,190 |
| | 6,631 |
| | 7,047 |
|
| Wynnewood | | | | | |
| Gasoline | 40,291 |
| | 38,311 |
| | 39,459 |
|
| Distillate | 33,442 |
| | 30,816 |
| | 29,302 |
|
| Other liquid products | 4,025 |
| | 5,429 |
| | 5,934 |
|
| Solids | 41 |
| | 54 |
| | 61 |
|
| Total production | 212,124 |
| | 218,316 |
| | 210,415 |
|
|
| | | | | | | | |
| Liquid volume yield (as % of total throughput) | 97.3 | % | | 96.9 | % | | 96.6 | % |
Financial Highlights
_____________________________
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Petroleum Operating Results
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 6,780 |
| | $ | 5,664 |
| | $ | 4,431 |
|
| Cost of materials and other | 5,602 |
| | 4,875 |
| | 3,779 |
|
| Direct operating expenses | 364 |
| | 441 |
| | 393 |
|
| Selling, general and administrative expenses | 75 |
| | 78 |
| | 72 |
|
| Depreciation and amortization | 134 |
| | 133 |
| | 129 |
|
| Loss on asset disposals | 6 |
| | 3 |
| | — |
|
| Petroleum Operating income | $ | 599 |
| | $ | 134 |
| | $ | 58 |
|
| | | | | | |
| Petroleum EBITDA (1) | $ | 742 |
| | $ | 269 |
| | $ | 187 |
|
| Petroleum Adjusted EBITDA (1) | $ | 746 |
| | $ | 349 |
| | $ | 218 |
|
| | | | | | |
| Key Operating Metrics per Total Throughput Barrel | | | | | |
| Refining Margin (1) | $ | 15.18 |
| | $ | 9.92 |
| | $ | 8.47 |
|
| Refining Margin, excluding Inventory Valuation Impacts (1) | $ | 15.60 |
| | $ | 9.55 |
| | $ | 7.80 |
|
| Direct Operating Expenses (1) | $ | 4.69 |
| | $ | 5.55 |
| | $ | 5.10 |
|
| Direct Operating Expenses, excluding Turnaround Expenses (1) | $ | 4.65 |
| | $ | 4.54 |
| | $ | 4.70 |
|
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Overview - The Petroleum Segment’s operating results for 2018 compared to 2017 increased due primarily to a significant increase in our refining margin on a total throughput barrel basis. Additionally, turnaround expenses totaled $80 million in 2017 for activities at our Wynnewood Refinery compared to $4 million in 2018 which relate to costs incurred in planning for the Wynnewood Refinery next turnaround in the first quarter of 2019.
Refining Margin -$2 million. For the year ended December 31, 2018 compared2021, we also incurred less than $1 million for the Coffeyville Fertilizer Facility expected turnaround in the summer of 2022.
East Dubuque Fertilizer Facility - The next planned turnaround at the East Dubuque Fertilizer Facility is expected to occur in the summer of 2022. For the year ended December 31, 2017, refining margin increased significantly on a per total throughput barrel basis largely due to the increase in crack spreads and crude differentials realized during the period. The NYMEX 2-1-1 crack spread increased by $1.23 per barrel, primarily due to an improved distillate crack of $4.22 offset by a decrease in the gasoline crack of $1.77. The Group 3 2-1-1 also improved in 2018 by $1.60 compared to the same period last year, again driven largely by an increase in the distillate crack of $4.74 offset by a decrease in the gasoline crack of $1.52. Given our significant distillate production,2021, we were able realize enhanced capture rates on the NYMEX and Group 3 crack spreads in 2018. Additionally, to our benefit in 2018, crude differentials were significantly higher in 2018 than in 2017. WCS and Midland crude supply availability and take-away constraints widened the discounts to WTI to $26.38 and $7.36 per barrel, respectively, for the year ended December 31, 2018, respectively, compared to $12.69 and $0.34, respectively, for the year ended December 31, 2017. In addition, refining margins benefited from a reduction in RFS compliance costs of $189 million driven by the significant price decline in RINs throughout 2018.
Direct Operating Expenses - Direct operating expenses, excluding turnaround expenses, increased slightly due to lower throughput in 2018 compared to 2017. Our 2018 throughput rates were negatively impacted by the FCCU outage at the Coffeyville Refinery during the first quarter of 2018.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Overview - The Petroleum Segment’s operating results for 2017 compared to 2016 increased due to an increase in our refining margin on a total throughput barrel basis. This increase was offset by turnaround expenses totaling $80incurred approximately $1 million in 2017turnaround expense related to planning for activities at the Wynnewood Refinery compared to $31 million in 2016 which relate to costs incurred at the Coffeyville Refinery.
Refining Margin - Our refining margin per barrel of total throughput increased to $9.92 for the year ended December 31, 2017 from $8.47 for the year ended December 31, 2016 primarily due to the improvement in product margins. The benchmark 2-1-1 crack spread improved to $18.19 per barrel for the year ended December 31, 2017 from $14.66 per barrel for the year ended December 31, 2016. Also contributing to the increase in refining margin and 2-1-1 crack spread per barrel was the improvement in the Group 3 gasoline basis to NYMEX gasoline to ($1.83) per barrel for the year ended December 31, 2017 as compared to ($3.62) per barrel in the comparable period in 2016. The per barrel improvement from 2016 to 2017 was offset by increased throughput in 2017. Additionally, the Petroleum Segment incurred an additional $43 million in RFS compliance costs due primarily to unfavorable RINs pricing observed in 2017 compared to 2016.
Nitrogen Fertilizer Segment
Utilization - The following tables summarize the ammonia utilization at the Coffeyville and East Dubuque facilities. Utilization is an important measure used by management to assess operational output at each of the Partnership’s facilities. Utilization is calculated as actual tons produced divided by capacity.
The Partnership presents our utilization on a two-year rolling average to take into account the impact of our current turnaround cycles on any specific period. The two-year rolling average is a more useful presentation of the long-term utilization performance of Nitrogen Fertilizer segment’s plants.
The Partnership present utilization solely on ammonia production rather than each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of plant configurations for upgrade of ammonia into other nitrogen products. With efforts primarily focused on Ammonia upgrade capabilities, this measure is the most meaningful in terms of management success in operations.
Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment’s key operating metrics are total sales for ammonia and UAN along with the product pricing per ton realized at the gate. Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure that is comparable across the fertilizer industry.
Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products.
|
| | | | | | | | |
| | Year Ended December 31, |
| (in thousands of tons) | 2018 | | 2017 | | 2016 |
| | | | | | |
| Ammonia (gross produced) | 794 |
| | 815 |
| | 694 |
|
| Ammonia (net available for sale) | 246 |
| | 268 |
| | 184 |
|
| UAN | 1,276 |
| | 1,268 |
| | 1,193 |
|
Feedstock. Our Coffeyville Facilityutilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Facility uses natural gas in its production of ammonia.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Feedstock: | | | | | |
| Petroleum coke used in production (thousand tons) | 463 |
| | 488 |
| | 514 |
|
| Petroleum coke (dollars per ton) | $ | 28 |
| | $ | 17 |
| | $ | 15 |
|
| Natural gas used in production (thousands of MMBtu)(1) | 7,933 |
| | 7,620 |
| | 5,596 |
|
| Natural gas used in production (dollars per MMBtu)(1) | $ | 3.28 |
| | $ | 3.24 |
| | $ | 2.96 |
|
| Natural gas cost of materials and other (thousands of MMBtu)(1) | 7,122 |
| | 8,052 |
| | 4,619 |
|
| Natural gas cost of materials and other (dollars per MMBtu)(1) | $ | 3.15 |
| | $ | 3.26 |
| | $ | 2.87 |
|
| |
(1) | The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in direct operating expense (exclusive of depreciation and amortization). |
Financial Highlights
The results of operations from the East Dubuque Merger are included for the post-acquisition period beginning April 1, 2016.
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Net Sales - Nitrogen Fertilizer net sales increased by $20 million to $351 million for the year ended December 31, 2018.This increase wasbenefited primarily from favorable pricing conditionsFacility’s expected turnaround in the second halfsummer of 2018 which contributed $37 million in higher revenues. These price increases were offset by $18 million in volume reductions in 2018 as compared to 2017.2022.
The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales for the year ended December 31, 2018 as compared to the year ended December 31, 2017:Goodwill Impairment
|
| | | | | | | |
| (in millions) | Price Variance | | Volume Variance |
| UAN | $ | 27 |
| | $ | 6 |
|
| Ammonia | 11 |
| | (24 | ) |
The increase in UAN sales volumes for the year ended December 31, 2018 compared to the year ended December 31, 2017 was primarily attributable to higher production resulting from less planned and unplanned downtime and a larger amount of product available in inventory as of December 31, 2017. The decrease in ammonia sales volumes for 2018 compared to 2017 was partly attributable to more product being left available for sale as of December 31, 2018 due to a comparatively weaker fall 2018 application as compared to in 2017. Weather was also a significant factor contributing to the decrease in ammonia sales volumes. As a result of a wetter than expected fall season, customers were unable to apply ammonia, resulting in certain customers canceling ammonia contractslower expectations for deliverymarket conditions in the fourth quarterfertilizer industry during 2020, the market performance of 2018.CVR Partners’ common units, a qualitative analysis, and additional risks associated with the business, CVR Partners performed an interim quantitative impairment assessment of goodwill for the Coffeyville Facility reporting unit as of June 30, 2020. The results of the impairment test indicated the carrying amount of this reporting unit exceeded the estimated fair value, and a full, non-cash impairment charge of $41.0 million was required.
December 31, 20182021 | 6257
Operating Income (Loss) - For 2018, operating income was $6 million compared to a loss of $10 million in 2017. The $16 million increase in operating income in 2018 is driven by improved market conditions discussed above. The net sales increase was offset by increased feedstock costs, due to higher pet coke, and purchased ammonia prices and higher direct operating expenses driven by an increase of $3 million in turnaround expenses year-over-year. During 2018, our Coffeyville Fertilizer Facility used 5% less pet coke. The facility’s cost of pet coke increased due to a higher proportion of pet coke being purchased from third parties at higher prices. The percentage of pet coke obtained from third parties increased from 34% for the year ended December 31, 2017 to 41% for the year ended December 31, 2018. The price for per coke purchased increased by 51% and 56%, respectively, year-over-year, with third party coke increasing from $37 to $56 per ton and internally produced coke increasing from $6 to $10 per ton. Direct operating expenses were higher due to $6 million being spent on the Coffeyville Fertilizer Facility’s 2018 turnaround compared to $3 million on the East Dubuque Facility’s 2017 turnaround.
Net Loss - The Nitrogen Fertilizer segment net loss of $50 million decreased significantly as compared to 2017 due to the operational and market improvements discussed above. Additionally, in December 2018, the Nitrogen Fertilizer segment recognized a business interruption insurance recovery of $6 million related to outages at our Coffeyville Facility in 2017 and 2018.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Net Sales - The Nitrogen Fertilizer Segment’s net sales were $331 million for the year ended December 31, 2017 compared to $356 million for 2016. The decrease of $25 million was attributable to negative impacts from weaker market conditions. Changes in ammonia and UAN volume did not have a material impact on net sales. The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales for 2017 as compared to 2016:
|
| | | | | | | |
| (in millions) | Price Variance | | Volume Variance |
| UAN | $ | (24 | ) | | $ | (7 | ) |
| Ammonia | (5 | ) | | (7 | ) |
Operating Income (Loss) - For 2017, operating income decreased by $36 million as compared to 2016 to a loss of $10 million. The significant decrease in operating income is primarily due to the unfavorable pricing conditions experienced in 2017. Also contributing in 2017 was an increase of $16 million in depreciation and amortization expense primarily driven by the full year of depreciation recognized in 2017 associated with East Dubuque Fertilizer Facility in April 2016. These increased costs were offset by lower turnaround expense of $4 million year-over-year .
Net Loss - The Nitrogen Fertilizer Segment’s net loss of $73 million in 2017 increased significantly compared to 2016 due to the operational and market conditions and operational expenses incurred in 2017. Additionally, in 2017, an increase of $14 million in interest expense occurred due to a full year of interest on the long-term debt obtained as part of the East Dubuque Facility acquisition in April 2016.
Non-GAAP Reconciliations
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Net income (loss) | $ | 74 | | | $ | (320) | | | $ | 362 | | |
| Interest expense, net | 117 | | | 130 | | | 102 | | |
| Income tax (benefit) expense | (8) | | | (95) | | | 129 | | |
| Depreciation and amortization | 279 | | | 278 | | | 287 | | |
| EBITDA | $ | 462 | | | $ | (7) | | | $ | 880 | | |
| Adjustments: | | | | | | |
| Revaluation of RFS liability | 63 | | | 59 | | | 16 | | |
| Gain on marketable securities | (81) | | | (34) | | | — | | |
| Unrealized (gain) loss on derivatives | (16) | | | 9 | | | (14) | | |
| Inventory valuation impact, (favorable) unfavorable | (127) | | | 58 | | | (43) | | |
| Goodwill impairment | — | | | 41 | | | — | | |
| Adjusted EBITDA | $ | 301 | | | $ | 126 | | | $ | 839 | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Net income | $ | 411 |
| | $ | 217 |
| | $ | 9 |
|
| Add: | | | | | |
| Interest expense and other financing costs, net of interest income | 102 |
| | 109 |
| | 83 |
|
| Income tax expense (benefit) | 89 |
| | (217 | ) | | (20 | ) |
| Depreciation and amortization | 213 |
| | 214 |
| | 193 |
|
| EBITDA | $ | 815 |
| | $ | 323 |
| | $ | 265 |
|
| Add: | | | | | |
| Loss on extinguishment of debt (1) | — |
| | — |
| | 5 |
|
| Turnaround expenses | 10 |
| | 83 |
| | 38 |
|
| Expenses associated with the East Dubuque Merger (2) | — |
| | — |
| | 3 |
|
| Adjusted EBITDA | $ | 825 |
| | $ | 406 |
| | $ | 311 |
|
_____________________________ | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Basic and diluted earnings (loss) per share | $ | 0.25 | | | $ | (2.54) | | | $ | 3.78 | |
Adjustments: (1) | | | | | |
| Revaluation of RFS liability | 0.46 | | | 0.43 | | | 0.12 | |
| Gain on marketable securities | (0.59) | | | (0.25) | | | — | |
| Unrealized (gain) loss on derivatives | (0.12) | | | 0.07 | | | (0.10) | |
| Inventory valuation impact, (favorable) unfavorable | (0.93) | | | 0.43 | | | (0.32) | |
Goodwill impairment (2) | — | | | 0.07 | | | — | |
| Adjusted (loss) earnings per share | $ | (0.93) | | | $ | (1.79) | | | $ | 3.48 | |
| | | | | |
| | |
(1) | Represents a loss on extinguishment of debt incurred by CVR Partners in June 2016 in connection with the repurchase of senior notes assumed in the East Dubuque Merger. |
(1)Amounts are shown after-tax, using the Company’s marginal tax rate, and are presented on a per share basis using the weighted average shares outstanding for each period.
(2)Amount is shown exclusive of noncontrolling interests.
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Net cash provided by operating activities | $ | 396 | | | $ | 90 | | | $ | 747 | |
| Less: | | | | | |
| Capital expenditures | (224) | | | (124) | | | (121) | |
| Capitalized turnaround expenditures | (5) | | | (159) | | | (38) | |
| Free cash flow | $ | 167 | | | $ | (193) | | | $ | 588 | |
| | | | | | | | |
(2) | Represents legal and other professional fees and other merger related expenses associated with the East Dubuque Merger. | |
Reconciliation of Income (Loss) before Income Tax Expense (Benefit) to Adjusted Net Income
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions, except per share amounts) | 2018 | | 2017 | | 2016 |
| Income (loss) before income tax expense (benefit) | $ | 500 |
| | $ | — |
| | $ | (11 | ) |
| Adjustments: | | | | | |
| Turnaround expenses (1) | 10 |
| | 83 |
| | 38 |
|
| Expenses associated with the East Dubuque Merger | — |
| | — |
| | 3 |
|
| Loss on extinguishment of debt | — |
| | — |
| | 5 |
|
| Adjusted net income before income tax expense and noncontrolling interest | 510 |
| | 83 |
| | 35 |
|
| Adjusted net income attributed to noncontrolling interest | (127 | ) | | (12 | ) | | (4 | ) |
| Income tax (expense) benefit, as adjusted | (91 | ) | | 196 |
| | 9 |
|
| Adjusted net income | $ | 292 |
| | $ | 267 |
| | $ | 40 |
|
| | | | | | |
| Weighted-average diluted shares outstanding | 92.5 |
| | 86.8 |
| | 86.8 |
|
| | | | | | |
| Adjusted net income per diluted share | $ | 3.16 |
| | $ | 3.08 |
| | $ | 0.47 |
|
December 31, 20182021 | 6458
Reconciliation of Petroleum Segment Net Income (Loss) to Petroleum EBITDA and Petroleum Adjusted EBITDA
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Petroleum net income (loss) | $ | 4 | | | $ | (271) | | | $ | 559 | |
| Interest (income) expense, net | (21) | | | (5) | | | 27 | |
| | | | | |
| Depreciation and amortization | 203 | | | 202 | | | 202 | |
| Petroleum EBITDA | 186 | | | (74) | | | 788 | |
| Adjustments: | | | | | |
| Revaluation of RFS liability | 63 | | | 59 | | | 16 | |
| Unrealized (gain) loss on derivatives | (16) | | | 9 | | | 14 | |
Inventory valuation impact, (favorable) unfavorable (1) (2) | (127) | | | 58 | | | (43) | |
| Petroleum Adjusted EBITDA | $ | 106 | | | $ | 52 | | | $ | 775 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| | | | | | |
| Petroleum net income | $ | 567 |
| | $ | 89 |
| | $ | 14 |
|
| Add: | | | | | |
| Interest expense and other financing costs, net of interest income | 41 |
| | 47 |
| | 44 |
|
| Depreciation and amortization | 134 |
| | 133 |
| | 129 |
|
| Petroleum EBITDA | $ | 742 |
| | $ | 269 |
| | $ | 187 |
|
| Add: | | | | | |
| Turnaround expenses (1) | 4 |
| | 80 |
| | 31 |
|
| Petroleum Adjusted EBITDA | $ | 746 |
| | $ | 349 |
| | $ | 218 |
|
(1)Represents expense associated with turnaround activities at the Coffeyville and Wynnewood Refineries.
Reconciliation of Petroleum Segment Gross Profit (Loss) to Refining Margin
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 6,780 |
| | $ | 5,664 |
| | $ | 4,431 |
|
| Cost of materials and other | 5,602 |
| | 4,875 |
| | 3,779 |
|
| Direct operating expenses (exclusive of depreciation and amortization as reflected below) | 360 |
| | 361 |
| | 362 |
|
| Turnaround expenses (1) | 4 |
| | 80 |
| | 31 |
|
| Depreciation and amortization | 130 |
| | 129 |
| | 126 |
|
| Gross profit | $ | 684 |
| | $ | 219 |
| | $ | 133 |
|
| Add: | | | | | |
| Direct operating expenses (exclusive of depreciation and amortization as reflected below) | 360 |
| | 361 |
| | 362 |
|
| Turnaround expenses (1) | 4 |
| | 80 |
| | 31 |
|
| Depreciation and amortization | 130 |
| | 129 |
| | 126 |
|
| Refining margin | $ | 1,178 |
| | $ | 789 |
| | $ | 652 |
|
| | | | | | |
| Exclude: (favorable) unfavorable inventory valuation impacts | 32 |
| | (29 | ) | | (52 | ) |
| Refining margin, excluding inventory valuation impacts | $ | 1,210 |
| | $ | 760 |
| | $ | 600 |
|
(1)Represents expense associated with turnaround activities at the Coffeyville and Wynnewood Refineries.
Reconciliation of Refining Margin and Refining Margin Adjusted for Inventory Valuation Impact
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Net sales | $ | 6,721 | | | $ | 3,586 | | | $ | 5,968 | |
| Less: | | | | | |
| Cost of materials and other | (6,100) | | | (3,288) | | | (4,765) | |
| Direct operating expenses (exclusive of depreciation and amortization) | (369) | | | (319) | | | (359) | |
| Depreciation and amortization | (197) | | | (194) | | | (199) | |
| Gross profit (loss) | 55 | | | (215) | | | 645 | |
| Add: | | | | | |
| Direct operating expenses (exclusive of depreciation and amortization) | 369 | | | 319 | | | 359 | |
| Depreciation and amortization | 197 | | | 194 | | | 199 | |
| Refining Margin | 621 | | | 298 | | | 1,203 | |
Inventory valuation impact, (favorable) unfavorable (1) (2) | (127) | | | 58 | | | (43) | |
| Refining margin, adjusted for inventory valuation impacts | $ | 494 | | | $ | 356 | | | $ | 1,160 | |
(1)The Petroleum Segment’s basis for determining inventory value under GAAP is First-In, First-Out (“FIFO”). Changes in crude oil prices can cause fluctuations in the inventory valuation of crude oil, work in process and finished goods, thereby resulting in a favorable inventory valuation impact when crude oil prices increase and an unfavorable inventory valuation impact when crude oil prices decrease. The inventory valuation impact is calculated based upon inventory values at the beginning of the accounting period and at the end of the accounting period. In order to derive the inventory valuation impact per total throughput barrel, we utilize the total dollar figures for the inventory valuation impact and divide by the number of total throughput barrels for the period.
(2)Includes an inventory valuation charge of $58 million recorded in the first quarter of 2020, as inventories were reflected at the lower of cost or net realizable value. No adjustment was necessary the years ended December 31, 2021 or 2019 or any other period in 2020.
Reconciliation of Petroleum Segment Total Throughput Barrels | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Total throughput barrels per day | 209,084 | | | 183,295 | | | 215,971 | |
| Days in the period | 365 | | | 366 | | | 365 | |
| Total throughput barrels | 76,315,701 | | | 67,085,913 | | | 78,829,441 | |
Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions, except per total throughput barrel) | 2021 | | 2020 | | 2019 |
| Refining margin | $ | 621 | | | $ | 298 | | | $ | 1,203 | |
| Divided by: total throughput barrels | 76 | | | 67 | | | 79 | |
| Refining margin per total throughput barrel | $ | 8.14 | | | $ | 4.44 | | | $ | 15.26 | |
Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions, except per total throughput barrel) | 2021 | | 2020 | | 2019 |
| Refining margin, adjusted for inventory valuation impact | $ | 494 | | | $ | 356 | | | $ | 1,160 | |
| Divided by: total throughput barrels | 76 | | | 67 | | | 79 | |
| Refining margin adjusted for inventory valuation impact per total throughput barrel | $ | 6.48 | | | $ | 5.31 | | | $ | 14.71 | |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Total throughput barrels per day | 212,595 |
| | 218,181 |
| | 210,472 |
|
| Days in the period | 365 |
| | 365 |
| | 366 |
|
| Total throughput barrels | 77,597,175 |
| | 79,636,065 |
| | 77,032,752 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Refining margin | $ | 1,178 |
| | $ | 789 |
| | $ | 652 |
|
| Divided by: total throughput barrels | 78 |
| | 80 |
| | 77 |
|
| Refining margin per total throughput barrel | $ | 15.18 |
| | $ | 9.92 |
| | $ | 8.47 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Refining margin, excluding inventory valuation impacts | $ | 1,210 |
| | $ | 760 |
| | $ | 600 |
|
| Divided by: total throughput barrels | 78 |
| | 80 |
| | 77 |
|
| Refining margin per total throughput barrel | $ | 15.60 |
| | $ | 9.55 |
| | $ | 7.80 |
|
Reconciliation of Petroleum Segment Direct Operating Expenses and Direct Operating Expenses, excluding Turnaround Expenses per Total Throughput Barrel
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions, except per total throughput barrel) | 2021 | | 2020 | | 2019 |
| Direct operating expenses (exclusive of depreciation and amortization) | $ | 369 | | | $ | 319 | | | $ | 359 | |
| Divided by: total throughput barrels | 76 | | | 67 | | | 79 | |
| Direct operating expenses per total throughput barrel | $ | 4.83 | | | $ | 4.76 | | | $ | 4.56 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions, except for per throughput barrel data) | 2018 | | 2017 | | 2016 |
| Direct operating expenses (exclusive of depreciation and amortization) | $ | 364 |
| | $ | 441 |
| | $ | 393 |
|
| Divided by: total throughput barrels | 78 |
| | 80 |
| | 77 |
|
| Direct operating expenses per total throughput barrel | $ | 4.69 |
| | $ | 5.55 |
| | $ | 5.10 |
|
| | | | | | |
| Direct operating expenses (exclusive of depreciation and amortization) | $ | 364 |
| | $ | 441 |
| | $ | 393 |
|
| Turnaround expenses (1) | 4 |
| | 80 |
| | 31 |
|
| Direct operating expenses | $ | 360 |
| | $ | 361 |
| | $ | 362 |
|
| Divided by: total throughput barrels | 78 |
| | 80 |
| | 77 |
|
Direct operating expenses, excluding turnaround expenses, per
total throughput barrel | $ | 4.65 |
| | $ | 4.54 |
| | $ | 4.70 |
|
(1)Represents expense associated with turnaround activities at the Coffeyville and Wynnewood Refineries.
Reconciliation of Nitrogen Fertilizer Segment Net LossIncome (Loss) to EBITDA and Adjusted EBITDA | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Nitrogen fertilizer net income (loss) | $ | 78 | | | $ | (98) | | | $ | (35) | |
| Interest expense, net | 61 | | | 63 | | | 62 | |
| | | | | |
| Depreciation and amortization | 74 | | | 76 | | | 80 | |
| Nitrogen Fertilizer EBITDA | 213 | | | 41 | | | 107 | |
| Goodwill impairment | — | | | 41 | | | — | |
| Adjusted Nitrogen Fertilizer EBITDA | $ | 213 | | | $ | 82 | | | $ | 107 | |
Reconciliation of Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer
| | | | | |
| |
| (in millions) | Twelve Months Ended
December 31, 2021 |
Total debt and finance lease obligations (1) | $ | 1,660 | |
| Less: | |
Nitrogen Fertilizer debt and finance lease obligations (1) | $ | (611) | |
| Total debt and finance lease obligations exclusive of Nitrogen Fertilizer | 1,049 | |
| |
| EBITDA exclusive of Nitrogen Fertilizer | $ | 249 | |
| |
| Total debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer | 4.21 | |
| |
| Consolidated cash and cash equivalents | $ | 510 | |
| Less: | |
| Nitrogen Fertilizer cash and cash equivalents | (113) | |
| Cash and cash equivalents exclusive of Nitrogen Fertilizer | 397 | |
| |
Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2) | $ | 652 | |
| |
Net debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer (2) | 2.62 | |
(1)Amounts are shown inclusive of the current portion of long-term debt and Nitrogen Fertilizer Adjusted EBITDAfinance lease obligations.
(2)Net debt represents total debt and finance lease obligations exclusive of cash and cash equivalents.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended | | Twelve Months Ended December 31, 2021 (1) |
| (in millions) | | | | | | | March 31,
2021 | | June 30,
2021 | | September 30, 2021 | | December 31, 2021 | |
| Consolidated | | | | | | | | | | | | | | | |
| Net (loss) income | | | | | | | $ | (55) | | | $ | (2) | | | $ | 106 | | | $ | 25 | | | $ | 74 | |
| Interest expense, net | | | | | | | 31 | | | 38 | | | 23 | | | 24 | | | 117 | |
| Income tax benefit | | | | | | | (42) | | | (6) | | | 47 | | | (7) | | | (8) | |
| Depreciation and amortization | | | | | | | 66 | | | 72 | | | 67 | | | 74 | | | 279 | |
| EBITDA | | | | | | | $ | — | | | $ | 102 | | | $ | 243 | | | $ | 116 | | | $ | 462 | |
| | | | | | | | | | | | | | | |
| Nitrogen Fertilizer | | | | | | | | | | | | | | | |
| Net (loss) income | | | | | | | $ | (25) | | | $ | 7 | | | $ | 35 | | | $ | 61 | | | 78 | |
| Interest expense, net | | | | | | | 16 | | | 23 | | | 11 | | | 11 | | | 61 | |
| | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | 14 | | | 21 | | | 18 | | | 21 | | | 74 | |
| EBITDA | | | | | | | $ | 5 | | | $ | 51 | | | $ | 64 | | | $ | 93 | | | $ | 213 | |
| | | | | | | | | | | | | | | |
| EBITDA exclusive of Nitrogen Fertilizer | | | | | | | $ | (5) | | | $ | 51 | | | $ | 179 | | | $ | 23 | | | $ | 249 | |
(1)Due to rounding, numbers within this table may not add or equal to totals presented.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| | | | | | |
| Nitrogen fertilizer net loss | $ | (50 | ) | | $ | (73 | ) | | $ | (27 | ) |
| Add: | | | | | |
| Interest expense and other financing costs, net | 62 |
| | 63 |
| | 49 |
|
| Depreciation and amortization | 72 |
| | 74 |
| | 58 |
|
| Nitrogen fertilizer EBITDA | $ | 84 |
| | $ | 64 |
| | $ | 80 |
|
| Add: | | | | | |
| Turnaround expenses | 6 |
| | 3 |
| | 7 |
|
| Loss on extinguishment of debt | — |
| | — |
| | 5 |
|
| Expenses associated with the East Dubuque Merger | — |
| | — |
| | 3 |
|
| Adjusted EBITDA | $ | 90 |
| | $ | 67 |
| | $ | 95 |
|
Liquidity and Capital Resources
Our principal source of liquidity has historically been cash from operations. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying dividends to our stockholders, as further discussed below.
The effects of the COVID-19 pandemic resulted in a reduction in U.S. economic activity during 2020 and into 2021 and, for our industry, resulted in significant changes in crude oil supply and a decline in prices, as well as decreases in refined product pricing due to reductions in demand for crude oil and our refined products, primarily gasoline and jet fuel. In February 2021, Winter Storm Uri caused unprecedented disruptions to natural gas, electricity supply and refinery operations throughout the Midwest and Gulf Coast regions. In August 2021, Hurricane Ida made landfall in Louisiana which also resulted in refinery shut-ins and upstream production disruptions in the Gulf Coast. These weather events and the related limitations to refining operations helped reduce refined product inventories and balance supply and demand throughout the region. This period of extreme economic disruption, low crude oil and refined product prices, and reduced demand has and is likely to continue to have an impact on our business, results of operations, and access to sources of liquidity.
While we believe demand for crude oil and refined products has nearly returned to pre-COVID-19 levels and commodity prices have rebounded, there is still uncertainty on the horizon as the COVID-19 vaccines are distributed and countries and states continue to monitor their efforts against the virus and virus variants. We continue to maintain our focus on safe and reliable operations, maintaining an appropriate level of cash to fund ongoing operations, and protecting the balance sheet. As a result of these factors, and in light of management’s decision to cease actively pursuing petroleum refinery acquisitions given, among other factors, the uncertainty of the current environment and other potential future cash requirements of the Company and in light of the upcoming expiration of its right to use excess proceeds pursuant to the Indenture governing the 5.25% Senior Notes due 2025 and 5.75% Senior Notes due 2028 (the “Senior Notes”), the Board elected to declare a special dividend equal to $492 million during the second quarter of 2021 comprised of cash and substantially all of its investment in Delek common stock. No quarterly dividends were declared for the fourth quarter of 2020 or the first, second and third quarters of 2021. These decisions support the Company’s continued focus on financial discipline through a balanced approach of evaluation of strategic investment opportunities and stockholder distributions while maintaining adequate capital requirements for ongoing operations throughout the uncertain environment. The Board will continue to evaluate the economic environment, the Company’s cash needs, optimal uses of cash, and other applicable factors, and may elect to make additional changes to the Company’s dividend (if any) in future periods. Additionally, in executing financial discipline, we have successfully implemented and are maintaining the following measures:
•Deferring the majority of our growth capital spending, with the exception of the RDU Project at the Wynnewood Refinery;
•Reducing the amount of refining maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider are required to support future activities;
•Focusing future capital allocation to high-return assets and opportunities that advance participation in the energy industry transformation;
•Continuing to focus on discipled management of operational and general and administrative cost reductions;
•For the Petroleum Segment, deferring the Wynnewood Refinery turnaround from the spring of 2021 to the spring of 2022 and deferring the Coffeyville Refinery turnaround from fall of 2021 to spring of 2023; and
•For the Nitrogen Fertilizer Segment, taking advantage of downtime to perform maintenance activities which enabled us to defer the Coffeyville Fertilizer Facility turnaround from 2021 to 2022.
When paired with the actions outlined above, we believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, under the AB Credit Facility (“AB Credit Facility”) and Amended ABL Credit Facility (“Amended ABL Credit Facility”), will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months, and that we have sufficient cash resources to fund our operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors including, but not limited to, rising material and labor costs, the costs associated with complying with the Renewable Fuel Standard’s outcome of litigation and other factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future operational performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control.
Depending on the needs of our business, contractual limitations and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or redeem, repurchase, refinance, or otherwise refinanceretire our existing debt.debt through, among other things, privately negotiated transactions, redemptions, exchange offers, or tender offers. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.
On June 23, 2021, CVR Partners and certain of its subsidiaries completed a private offering of $550 million aggregate principal amount of 6.125% Senior Unsecured Notes due June 2028 (the “2028 UAN Notes”), which mature on June 15, 2028, and partially redeemed CVR Partners’ 9.25% Senior Notes due June 2023 (the “2023 UAN Notes”) in the amount of $550 million. On September 23, 2021 and December 22, 2021, CVR Partners redeemed an additional $15 million and $15 million, respectively, in aggregate principal of the 2023 UAN Notes. On February 22, 2022, CVR Partners redeemed the remaining $65 million in aggregate principal amount of the 2023 UAN Notes. Collectively, these transactions represent a significant and favorable change in CVR Partners’s cash flow and liquidity position, with annual savings of approximately $26 million in future interest expense, as compared to our 2020 Form 10-K. Additionally, on September 30, 2021, CVR Partners entered into a new credit agreement with an aggregate principal amount of up to $35 million with a maturity date of September 30, 2024 (the “Nitrogen Fertilizer ABL”) and terminated its $35 million ABL Credit Agreement, dated as of September 30, 2016, as amended (the “UAN 2016 ABL Credit Agreement”). Refer to Part II, Item 8 Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion. The Company, and its subsidiaries, were in compliance with all applicable covenants under their respective debt instruments as of December 31, 2021, as applicable.
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
Cash Balances and Other Liquidity
As of December 31, 2018,2021, we had total liquidity of approximately $906 million which consisted of consolidated cash and cash equivalents of $668$510 million, $394$361 million available under CVR Refining’s Amendedthe Petroleum ABL Credit Facility and $50$35 million available under CVR Partners’ Asset Based Credit Facility.
the Nitrogen Fertilizer ABL. As of December 31, 20182020, we had $667 million in cash and cash equivalents.
| | | | | | | | | | | |
| (in millions) | December 31, 2021 | | December 31, 2020 |
| CVR Partners: | | | |
9.25% Senior Secured Notes, due June 2023 (1) | $ | 65 | | | $ | 645 | |
| 6.125% Senior Notes, due June 2028 | 550 | | | — | |
| Unamortized discount and debt issuance costs | (4) | | | (11) | |
| Total CVR Partners debt | $ | 611 | | | $ | 634 | |
| | | |
| | | |
| | | |
| | | |
| CVR Energy: | | | |
| 5.25% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | |
| 5.75% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance cost | (5) | | | (6) | |
| Total CVR Energy debt | $ | 995 | | | $ | 994 | |
| Total long-term debt | 1,606 | | | 1,628 | |
Current portion of long-term debt (2) | — | | | 2 | |
| Total long-term debt, including current portion | $ | 1,606 | | | $ | 1,630 | |
(1)The call price of the 2023 UAN Notes decreased to par on June 15, 2021. On June 23, 2021, September 23, 2021, and December 22, 2021, CVR Partners redeemed $550 million, $15 million, and $15 million, respectively, of the 2023 UAN Notes, at par, plus accrued and unpaid interest on the redeemed portion. The remaining balance of $65 million is outstanding as of December 31, 2021. The $65 million outstanding balance of the 2023 UAN Notes was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.
(2)The $2 million outstanding balance of the 6.50% Notes, due April 2021, was paid in full on April 15, 2021.
CVR Partners
On June 23, 2021, CVR Partners and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, the “Issuers”), completed a private offering of $550 million aggregate principal amount of the 2028 UAN Notes. The net proceeds from the 2028 UAN Notes, plus cash on hand, were used to redeem $550 million aggregate principal amount
|
| | | | | | | |
| (in millions) | December 31, 2018 | | December 31, 2017 |
| | | | |
| CVR Partners: | | | |
| 9.25% Senior Secured Notes due June 2023 | $ | 645 |
| | $ | 645 |
|
| 6.50% Senior Notes due April 2021 | 2 |
| | 2 |
|
| Unamortized discount and debt issuance costs | (18 | ) | | (22 | ) |
| Total CVR Partners Debt | $ | 629 |
| | $ | 625 |
|
| | | | |
| CVR Refining: | | | |
| 6.50% Senior Notes due November 2022 | $ | 500 |
| | $ | 500 |
|
| Capital lease obligations | 44 |
| | 45 |
|
| Unamortized debt issuance cost | (3 | ) | | (4 | ) |
| Current portion of capital lease obligations | (3 | ) | | (2 | ) |
| Total CVR Refining Debt | $ | 538 |
| | $ | 539 |
|
| | | | |
| Total Long-Term Debt | $ | 1,167 |
| | $ | 1,164 |
|
Amendedof the 2023 UAN Notes. On September 23, 2021 and December 22, 2021, CVR Partners redeemed $15 million and $15 million aggregate principal amount of the outstanding 2023 UAN Notes, respectively. On September 30, 2021, CVR Partners entered into the Nitrogen Fertilizer ABL and terminated its UAN 2016 ABL Credit Facility - On November 14, 2017, Coffeyville Resources LLC (“CRLLC”), CVR Refining, CVR Refining LLC (“Refining LLC”) and eachAgreement. As of the operating subsidiaries of Refining LLC (collectively, the “Credit Parties”) entered into Amendment No. 1 to the Amended and Restated ABL Credit Agreement (the “Amendment”) with a group of lenders and Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent and collateral agent. The Amendment amends certain provisions of the Amended and Restated ABL Credit Agreement, dated December 20, 2012, by and among Wells Fargo,31, 2021, the group of lenders party thereto and the Credit Parties (the “Existing Credit Agreement” and as amended by the Amendment, the “Amended and Restated ABL Credit Facility”), which was otherwise scheduled to mature in December 2017. The Amended and Restated ABL Credit Facility is a $400 million asset-based revolving credit facility, with sub-limits for letters of credit and swingline loans of $60 million and $40 million, respectively. The Amended and Restated ABL Credit Facility also includes a $200 million uncommitted incremental facility. The proceeds of the loans may be used for capital expenditures, working capital and general corporate purposes. The Amended and Restated Credit Facility matures in November 2022.
AB Credit Facility - The Nitrogen Fertilizer Segment has an AB Credit Facility,had the remaining portion of the 2023 UAN Notes, the 2028 UAN Notes, and the Nitrogen Fertilizer ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. The AB Credit Facility is a senior secured asset-based revolving credit facility with an aggregate principal amount of availability of up to $50.0 million with an incremental facility, which permits an increase in borrowings of up to $25.0 million in the aggregate subject to additional lender commitments and certain other conditions. The AB Credit Facility matures in September 2021.On February 22, 2022, CVR Partners wasredeemed the remaining $65 million in compliance with all applicable covenants as of December 31, 2018.
2023 Notes - CVR Partners issued $645 million aggregate principal amount of 9.250% Senior Secured Notes due 2023 (the “2023 Notes”) in 2016. The 2023 Notes are guaranteed on a senior secured basis by all of the Nitrogen Fertilizer Segment’s existing subsidiaries. At any time prior to June 15, 2019, we may on any of one or more occasions redeem up to 35% of the aggregate principal amount of the 2023 Notes issued underUAN Notes. Refer to Part II, Item 8 Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion.
CVR Refining
As of December 31, 2021, the indenture governingPetroleum Segment has the 2023Petroleum ABL, the proceeds of which may be used to fund working capital, capital expenditures, and for other general corporate purposes. Refer to Part II, Item 8 Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion.
CVR Energy
As of December 31, 2021, CVR Energy has the Senior Notes, in an amount not greater than the net proceeds of one or more public equity offerings at a redemption price of 109.250% of the principal amount of the 2023 Notes, plus any accrued and unpaid interest to the date of redemption. Prior to June 15, 2019, we may on any one or more occasions redeem all or part of the 2023 Notes at a redemption price equal to the sum of: (i) the principal amount thereof, plus (ii) the make whole premium, as defined in the indenture (the “2023 Indenture”) governing the 2023 Notes, at the redemption date, plus any accrued and unpaid interest to the applicable redemption date.
Upon the occurrence of certain change of control events as defined in the 2023 Indenture (including the sale of all or substantially all of the properties or assets of the Nitrogen Fertilizer Segment and its subsidiaries taken as a whole), each holder of the 2023 Notes will have the right to require that the Nitrogen Fertilizer Segment repurchase all or a portion of such holder’s 2023 Notes in cash at a purchase price equal to 101% of the aggregate principal amount thereof plus any accrued and unpaid interest to the date of repurchase.
2022 Notes - CVR Refining’s $500 million aggregate principal amount of 6.5% Second Lien Senior Notes due 2022 (the “2022 Notes”) are unsecured and fully and unconditionally guaranteed by CVI, CVR Refining and each of Refining LLC’s existing domestic subsidiaries (other than the co-issuer, Coffeyville Finance) on a joint and several basis. The 2022 Notes mature on November 1, 2022, unless earlier redeemed or repurchased by the issuers. Interest is payable on the 2022 Notes semi-annually on May 1 and November 1 of each year, to holders of record at the close of business on April 15 and October 15, as the casewhich may be immediately preceding each such interest payment date.used for general corporate purposes, which may include funding acquisitions, capital projects, and/or share repurchases or other distributions to our stockholders. Refer to Part II, Item 8 Note 6 (“Long-Term Debt and Finance Lease Obligations”) of this Report for further discussion.
Credit Agreement - On January 29, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with Jefferies Finance LLC to provide a term loan credit facility with a maturity date of March 10, 2019. The borrowings under the Credit Agreement of $105 million were used to fund a portion of the CVRR Unit Purchase. All amounts were repaid on February 11, 2019.
Capital Spending
We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed.
In December 2020, our Board approved the renewable diesel project at our Wynnewood Refinery, which would convert the refinery’s hydrocracker to a RDU capable of producing 100 million gallons of renewable diesel per year. Currently, total estimated cost for the project is $170 million. Mechanical completion and startup of the RDU is expected to occur in the second quarter of 2022. In May 2021, the Board approved a $10 million capital expenditure for the completion of the design and ordering of certain long-lead equipment relating to a potential project to add pretreating capabilities for the RDU at the Wynnewood Refinery and for the completion of the design for a potential conversion of an existing hydrotreater at the Coffeyville Refinery to renewable diesel and sustainable aviation fuel services. In November 2021, the Board approved the pretreater project at the Wynnewood Refinery, which is expected to be completed in the fourth quarter of 2022 at an estimated cost of $60 million.
Our total capital expenditures for the year ended December 31, 20182021, along with our estimated expenditures for 2019,2022, by segment, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 Actual | | 2022 Estimate (1) |
| Maintenance | Growth | Total | | Maintenance | Growth | Total |
| (in millions) | | Low | High | Low | High | Low | High |
| Petroleum | $ | 47 | | $ | 3 | | $ | 50 | | | $ | 100 | | $ | 110 | | $ | 2 | | $ | 6 | | $ | 102 | | $ | 116 | |
Renewables (2) | — | | 148 | | 148 | | | — | | — | | 80 | | 90 | | 80 | | 90 | |
| Nitrogen Fertilizer | 16 | | 10 | | 26 | | | 32 | | 34 | | 4 | | 5 | | 36 | | 39 | |
| Other | 2 | | — | | 2 | | | 4 | | 6 | | — | | — | | 4 | | 6 | |
| Total | $ | 65 | | $ | 161 | | $ | 226 | | | $ | 136 | | $ | 150 | | $ | 86 | | $ | 101 | | $ | 222 | | $ | 251 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | 2018 Actual | | 2019 Estimate (1) |
| | Maintenance | Growth | Total | | Maintenance | Growth | Total |
| | | Low | High | Low | High | Low | High |
| Petroleum | $ | 62 |
| $ | 17 |
| $ | 79 |
| | $ | 125 |
| $ | 140 |
| $ | 55 |
| $ | 60 |
| $ | 180 |
| $ | 200 |
|
| Nitrogen Fertilizer | 15 |
| 4 |
| 19 |
| | 18 |
| 20 |
| 2 |
| 5 |
| 20 |
| 25 |
|
| Other | 4 |
| — |
| 4 |
| | 10 |
| 15 |
| — |
| — |
| 10 |
| 15 |
|
| Total | $ | 81 |
| $ | 21 |
| $ | 102 |
| | $ | 153 |
| $ | 175 |
| $ | 57 |
| $ | 65 |
| $ | 210 |
| $ | 240 |
|
_____________________________
| | |
(1) | Total 2019 estimated capital expenditures includes approximately $50 to 60 million of growth related projects that will require additional approvals before commencement. |
(1)Total 2022 estimated capitalized costs include approximately $7 million of growth related projects that will require additional approvals before commencement.
(2)Renewables reflects spending on the Wynnewood Refinery RDU project. Amounts spent in 2020 were previously reported under Other. Upon completion and meeting of certain criteria under accounting rules, Renewables is expected to be a new reportable segment. As of December 31, 2021, Renewables does not the meet the definition of a reportable segment as defined under ASC 280.
Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for capital projects. For example, we may experience increases/decreasesunexpected changes in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the refineries or nitrogen fertilizer plants.facilities. We may also accelerate or defer some capital expenditures from time to time. Capital spending for CVR Partners is determined by the board of directors of its general partner.partner (the “UAN GP Board”). We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans.
The Petroleum Segment completed its scheduled turnaround at the Coffeyville Refinery in April 2020 with total capitalized expenditures of $155 million. The next planned turnaround for the Wynnewood Refinery is in the spring of 2022. During the years ended December 31, 2021, we capitalized $7 million related to pre-planning activities at the Wynnewood Refinery. The Coffeyville Refinery’s next planned turnaround is expected to start in the spring of 2023, with pre-planning expenditures of $5 million expected to be incurred during 2022.
The Nitrogen Fertilizer Segment has planned turnarounds scheduled at our Coffeyville Fertilizer Facility and East Dubuque Fertilizer Facility. The turnaround at our Coffeyville Fertilizer Facility is expected to occur in the summer of 2022, with an estimated cost of $10 to $13 million, and the turnaround at our East Dubuque Fertilizer Facility is also expected to commence in the summer of 2022, with an estimated cost of $13 to $15 million. Additionally, the Coffeyville Fertilizer Facility had planned downtime for certain maintenance activities, which was completed in the fourth quarter of 2021 at a cost of $2 million. For the year ended December 31, 2021, we also incurred less than $1 million and approximately $1 million, in turnaround expense related to planning for the Coffeyville Fertilizer Facility’s and East Dubuque Fertilizer Facility’s expected turnarounds in 2022, respectively.
Dividends to CVR Energy Stockholders
The Company has a dividend policy. Dividends, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the boardCompany’s Board of directors. On February 20, 2019,Directors. IEP, through its ownership of the Company’s boardcommon shares, is entitled to receive dividends that are declared and paid by the Company based on the number of directorsshares held at each record date. No dividends were declared a cash dividend forrelated to the fourth quarter of 20182021, and there were no quarterly dividends declared or paid during 2021 related to the Company’s stockholdersfirst, second, and third quarters of $0.752021 and fourth quarter of 2020. During the years ended December 31, 2020 and 2019, the Company paid dividends totaling $1.20 and $3.05 per common share, or $121 million and $306 million, respectively. Of these dividends, IEP received $85 million and $218 million, respectively, for the same periods.
On May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s common stock, to be paid in a combination of cash (the “Cash Distribution”) and common stock of Delek held by the Company (the “Stock Distribution”). On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $75$2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the aggregate. The dividend will be paid on March 11, 2019Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.
Distributions to stockholders of recordCVR Partners’ Unitholders
Distributions, if any, including the payment, amount and timing thereof, are subject to change at the closediscretion of businessthe UAN GP Board. The following table presents distributions paid by CVR Partners to CVR Partners’ unitholders, including amounts received by the Company, as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Distributions Paid (in millions) |
| Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | |
| 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | |
| Total | | | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 49 | |
There were no distributions declared or paid by CVR Partners related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were declared or paid during 2020. During the year ended December 31, 2019, CVR Partners paid distributions totaling $4.00 per common unit on March 4, 2019.a split-adjusted basis, or $45 million. Of these distributions, CVR Energy received $16 million.
Distributions to Unitholders
For the fourth quarter of 2018, the2021, CVR Partners, upon approval by its general partner’s board of directorsthe UAN GP Board on February 20, 2019,21, 2022, declared a distribution of $0.12$5.24 per common unit, or $14$56 million, which is payable on March 11, 201914, 2022 to unitholders of record as of March 4, 2019.7, 2022. Of this amount, weCVR Energy will receive approximately $5$20 million, with the remaining amount payable to public unitholders.
Capital Structure
On October 23, 2019, the Board authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program would enable the Company to repurchase up to $300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory, debt maintenance and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board at any time. As of December 31, 20182021, the Company has not repurchased any of the Company’s common stock under the Stock Repurchase Program.
On May 6, 2020, CVR Partners announced that the UAN GP Board, on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”). The Unit Repurchase Program enables CVR Partners to repurchase up to $10 million of its common units. On February 22, 2021, the UAN GP Board authorized an additional $10 million for the Unit Repurchase Program. During the year ended December 31, 2021, CVR Partners repurchased 24,378 common units on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $1 million, inclusive of transaction costs, or an average price of $21.70 per common unit. During the year ended December 31, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of CVR Partners’s common units that was effective as of November 23, 2020, CVR Partners repurchased 623,177 common units, respectively, at a cost of $7 million, inclusive of transaction costs, or an average price of $11.35 per common unit. As of December 31, 2021, CVR Partners had $12 million in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to acquire any common units and may be cancelled or terminated by the UAN GP Board at any time.
Cash Flows
The following table sets forth our consolidated cash flows for the periods indicated below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 396 | | | $ | 90 | | | $ | 747 | |
| Investing activities | (238) | | | (423) | | | (121) | |
| Financing activities | (315) | | | 355 | | | (642) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | $ | (157) | | | $ | 22 | | | $ | (16) | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| (in millions) | |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 620 |
| | $ | 168 |
| | $ | 267 |
|
| Investing activities | (100 | ) | | (196 | ) | | (201 | ) |
| Financing activities | (334 | ) | | (226 | ) | | (95 | ) |
| Net increase (decrease) in cash and cash equivalents | $ | 186 |
| | $ | (254 | ) | | $ | (29 | ) |
Operating Activities
Net cash flows provided byThe change in operating activities for the year ended December 31, 2018 were approximately $620 million2021, as compared to $168 million in 2017. The increase of $452 million as due to the improved operating results from our business as illustrated by the increase of $492 million in EBITDA from 2017 to 2018. This increase was offset by changes in working capital and other assets and liabilities during 2018.
Net cash flows provided by operating activities for the year ended December 31, 2017 decreased by $992020, was primarily due to a $469 million from $267increase in EBITDA during 2021, which includes a $47 million increase in 2016. This decrease wasnon-cash earnings on the Company’s investment in Delek in 2021 compared to 2020, as well as favorable changes in working capital of $111 million associated with the increase in crude oil prices and increase in our open RFS position and a $42 million increase in non-cash share based compensation as a result of significant cash expenditureshigher market prices for CVR Partners’ units and CVR Energy’s shares in 2021 compared to purchase RINs for the Petroleum Segment’s RFS compliance which more than2020. This is partially offset by an increase in EBITDAnet non-cash deferred tax expense of $58$68 million, year-over-year.as well as a 2020 lower of cost or market inventory charge of $59 million and a $41 million non-cash impairment of goodwill recognized in 2020.
Investing Activities
Net cash usedThe change in investing activities for the year ended December 31, 2018 was $100 million2021, as compared to $196 million for the year ended December 31, 2017. The decrease as compared to the prior year is largely a result of the prior year $76 million investment in a Midway Pipeline, LLC (“Midway”) joint venture along with lower capital expenditures in 2018.
Net cash used in investing activities for the year ended December 31, 2017 was $196 million compared to $201 million for the year ended December 31, 2016. The decrease of $5 million of cash used in investing activities2020, was primarily due to a reduction in turnaround expenditures of $154 million in 2021 due to the net $64Coffeyville Refinery turnaround completed in April 2020 and the purchase of Delek common stock for $140 million in the first quarter of cash paid2020. These decreases are partially offset by an increase in 2016capital expenditures of $100 million primarily related to the Wynnewood Refinery’s RDU in 2021 and payments for the acquisition of the East Dubuque Fertilizer Facility and $13pipeline assets of $20 million in lower capital expenditures in 2017 compared to 2016. These decreases from 2016 to 2017 were offset by the investment in the Midway joint venture in 2017.first quarter of 2021.
Financing Activities
Net cash usedThe change in financing activities for the year ended December 31, 2018 was $334 million, as compared to $226 million for the year ended December 31, 2017. The net cash used in financing activities for the year ended December 31, 2018 was primarily attributable to dividend payments to common stockholders of $238 million and distributions to CVR Refining common unitholders of $93 million. The increase2021, as compared to the prior year is largely a result of higher dividend and distribution payments being made in the current yearnet cash provided by both CVR Energy and CVR Refining.
Net cash used in financing activities for the year ended December 31, 20172020 was $226 million compareddue to $95 million for the year ended December 31, 2016. Dividend paymentsJanuary 2020 private offering of $174 million to our common stockholdersthe 5.25% Senior Notes due 2025 and distributions5.75% Senior Notes due 2028 totaling $1 billion, netted against the issuance was the redemption of $47the outstanding CVR Refining 2022 Notes in January 2020 of $500 million and $2 million to CVR Refining andcall premium of $5 million. Additionally, during the second quarter of 2021, CVR Partners common unitholders, respectively, were consistent year-over-year.completed a private offering of the 2028 UAN Notes totaling $550 million and used the proceeds, plus cash on hand, to redeem a portion of the 2023 UAN Notes in the second, third, and fourth quarters of 2021. The increase inresult of these debt offerings and the respective redemptions of outstanding senior notes is a net cash usedreduction in financing activities of $131approximately $527 million for the year ended December 31, 2017in 2021 as compared to 2016 was primarily due2020. Further, CVR Energy paid dividends of $241 million in 2021 compared to the $133$121 million net proceeds received in 2016 from2020, and CVR Partners’ issuancePartners paid cash distributions of 2023 Notes net of debt repayments$31 million in connection with the East Dubuque Fertilizer Facility acquisition.2021 compared to no distributions in 2020.
Long-Term Commitments
In addition to long-term debt, we are required to make payments relating to various types of obligations. The following table summarizes our minimum payments as of December 31, 2018 relating to contractual obligations and other commercial commitments for the five-year period following December 31, 2018 and thereafter.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (in millions) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| Contractual Obligations | | | | | | | | | | | | | |
| Long-term debt (1) | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 500 |
| | $ | 645 |
| | $ | — |
| | $ | 1,147 |
|
| Operating leases (2) | 24 |
| | 20 |
| | 18 |
| | 16 |
| | 12 |
| | 26 |
| | 116 |
|
| Capital lease obligations (3) | 3 |
| | 3 |
| | 3 |
| | 3 |
| | 3 |
| | 29 |
| | 44 |
|
| Unconditional purchase obligations (4) | 129 |
| | 89 |
| | 78 |
| | 76 |
| | 75 |
| | 444 |
| | 891 |
|
| Interest payments (5) | 98 |
| | 98 |
| | 98 |
| | 92 |
| | 33 |
| | 9 |
| | 428 |
|
| Other long-term liabilities (6) | 10 |
| | 1 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 14 |
|
| Total | $ | 264 |
| | $ | 211 |
| | $ | 200 |
| | $ | 687 |
| | $ | 768 |
| | $ | 510 |
| | $ | 2,640 |
|
| |
(1) | Consists of the 2021 Notes, the 2022 Notes and the 2023 Notes as of December 31, 2018. |
| |
(2) | CVR Refining and CVR Partners lease various facilities and equipment. |
| |
(3) | The amount includes commitments under capital lease arrangements for three leases which include a pipeline lease, a storage and terminal equipment lease and a bundled truck lease. |
| |
(4) | The amount includes (i) commitments for petroleum products storage and petroleum transportation, (ii) electricity supply agreement, (iii) a product supply agreement, (iv) a pet coke supply agreement, (v) commitments related to our biofuels blending obligation and (vi) various agreements for gas and gas transportation. |
| |
(5) | Interest payments for our long-term debt outstanding and capital lease obligations as of December 31, 2018 and commitment fees on the unutilized commitments of the ABL Credit Facility. |
| |
(6) | The amount includes environmental liabilities and a standby letter of credit. Environmental liabilities represents our estimated payments required by federal and/or state environmental agencies. See Item 1 “Business Environmental Matters.” |
Off-Balance Sheet Arrangements
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Note 2 (“Summary of Significant Accounting Policies”), of this Report for a discussion of recent accounting pronouncements applicable to us.the Company.
Critical Accounting PoliciesEstimates
We prepare our consolidated financial statements in accordance with GAAP. In orderGAAP requiring management to apply these principles, management must make judgments, assumptions, and estimates based on the best available information at the time. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to
account for highly uncertain matters or the susceptibility of such matters to change; and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results maycould differ from the estimates and assumptions used.
Inventory Valuation
The cost of our petroleum and nitrogen fertilizer product inventories is determined under the FIFO method. Our FIFO inventories are carried at the lower of cost or net realizable value. We compare the estimated realizable value of inventories to their cost by product at each of our facilities. In our Petroleum Segment, to determine the net realizable value of our inventories, we assume that crude oil and other feedstocks are converted into refined products, which requires us to make estimates regarding the refined products expected to be produced from those feedstocks and the conversion costs required to convert those feedstocks into refined products. We also estimate the usual and customary transportation costs required to move the inventory from our plants to the appropriate points of sale, if material. We then apply an estimated selling price to our inventories based primarily on actual prices observed subsequent to the end of the reporting period with any remaining volumes’ selling price estimated using indicative market pricing available as of the time the estimate is made. If the net realizable value is less than cost, we recognize a loss for the difference in our statements of operations. For our Nitrogen Fertilizer Segment, depending on inventory levels, the per-ton realizable value of our fertilizer products is estimated using pricing on in-transit orders, pricing for open, fixed-price orders that have not shipped, and, if volumes remain unaccounted for, current management pricing estimates for fertilizer products. Management’s estimate for current pricing reflects up-to-date pricing in each facility’s market as of the end of each reporting period. Reductions to selling prices for unreimbursed freight costs are included to arrive at net realizable value, as applicable. During the year ended December 31, 2020, we recognized losses on inventory of $59 million to reflect net realizable value, primarily associated with our Petroleum Segment. No amounts were recognized for the years ended December 31, 2021 and 2019. Due to the amount and variability in volume of inventories maintained, changes in production costs, and the volatility of market pricing for our products, losses recognized to reflect inventories at the lower of cost or net realizable value could have a material impact on the Company’s results of operations.
Impairment of Long-lived Assets and Goodwill
Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to its estimated fair value. Individual assets are grouped for impairment purposes based on the accuracya judgmental assessment of the information utilizedlowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets (for example, at a refinery or fertilizer facility level).
One of the reporting units associated with our Nitrogen Fertilizer Segment’s Coffeyville, Kansas facility (the “Coffeyville Fertilizer Facility”) had a goodwill balance of $41 million at December 31, 2019. During the second quarter of 2020, following the completion of the spring planting season, the market pricing for ammonia and subsequent events. Our accounting policies are describedUAN, the Nitrogen Fertilizer Segment’s two primary products, experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and soybean given reduced ethanol production and broader economic conditions which may negatively impact demand. Therefore, in connection with the preparation of the financial statements for the three months ended June 30, 2020, given the pricing declines experienced in the notessecond quarter of 2020, further muting of our near-term economic recovery assumptions, and market price performance of CVR Partners’ common units, the Company concluded an impairment indicator was present and a triggering event under Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other, had occurred as of June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, our audited consolidatedprospective financial statements included elsewhere in this Report. Our critical accounting policies, which are listed below, could materially affectinformation, growth rates, discount rates, inflationary factors, and cost of capital. Based on the amounts recorded in our consolidated financial statements.
•Goodwill impairment
•Income taxes
•Impairment of long-lived assets
•Derivative instruments andinterim quantitative analysis, it was determined that the estimated fair value of financial instruments
Refer to Part II, Item 8, Note 2 (“Summarythe Coffeyville Fertilizer Facility reporting unit did not exceed its carrying value. As a result, the Company recorded a full, non-cash impairment charge of Significant Accounting Policies”), of this Report for a discussion of these, and other, accounting policies.
$41 million during the year ended December 31, 20182020.
As there was no goodwill balance at December 31, 2021, no annual impairment review was performed. The Company performed its annual impairment review of goodwill for 2019 associated with the Coffeyville Fertilizer Facility reporting unit and concluded there were no impairments. For the period ended December 31, 2019, no events or circumstances were identified
which would trigger the performance of a quantitative analysis after reviewing all qualitative factors impacting the Coffeyville Fertilizer Facility reporting unit, including improved market conditions, financial results, and financial forecasts from those used in the fair value analysis at December 31, 2018. For the period ended December 31, 2018, the fair value of the Coffeyville Fertilizer Facility reporting unit exceeded its carrying value by approximately 36% based upon the results of the reporting unit’s goodwill impairment test.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The risk inherent in ourOur market risk sensitive instruments and positions is thehave inherent risks including potential loss from adverse changes in commodity prices, RINs prices, and interest rates.
Commodity Price Risk
The petroleum segment,Petroleum Segment, as a manufacturer of refined petroleum products, and the nitrogen fertilizer segment,Nitrogen Fertilizer Segment, as a manufacturer of nitrogen fertilizer products, all of which are commodities, have exposure to market pricing for products sold in the future. In order to realize value from our processing capacity, a positive spread between the cost of raw materials and the value of finished products must be achieved (i.e., gross margin or crack spread). The physical commodities that comprise our raw materials and finished goods are typically bought and sold at a spot or index price that can be highly variable.
The petroleum segmentPetroleum Segment uses a crude oil purchasing intermediary, Vitol, Inc., to purchase the majority of its non-gathered crude oil inventory for the refineries, which allows it to take title to and price its crude oil at locations in close proximity to the refineries, as opposed to the crude oil origination point, reducing its risk associated with volatile commodity prices by shortening the commodity conversion cycle time. The commodity conversion cycle time refers to the time elapsed between raw material acquisition and the sale of finished goods. In addition, the petroleum segmentPetroleum Segment seeks to reduce the variability of commodity price exposure by engaging in hedging strategies and transactions that will serve to protect gross marginsmargin as forecasted in the annual operating plan. With regard to its hedging activities, the petroleum segmentPetroleum Segment may enter into, or has entered into, derivative instruments which serve to:to (1) lock in or fix a percentage of the anticipated or planned gross margin in future periods when the derivative market offers commodity spreads that generate positive cash flows;flows, (2) hedge the value of inventories in excess of minimum required inventories;inventories, and (3) manage existing derivative positions related to a change in anticipated operations and market conditions.
RFS Compliance Program Price Risk
As a producer of transportation fuels from petroleum, CVR Refiningcrude oil, the Petroleum Segment is required to blend biofuels into the productproducts it produces or to purchase RINs in the open market in lieu of blending to meet the mandates established by the EPA. CVR RefiningThe Petroleum Segment is exposed to market risk related to volatility in the price of RINs needed to comply with the RFS that are not otherwise generated through blending of renewable fuels in our refining and marketing operations. To mitigate the impact of this risk on CVR Refining’sthe Petroleum Segment’s results of operations and cash flows, CVR Refining purchasesthe Petroleum Segment blends ethanol and biodiesel to the extent possible. Additionally, in December 2020, the Board approved full funding for the development of a RDU at our Wynnewood Refinery, which we estimate will result in the generation of approximately 180 million RINs when prices are deemed favorable. See Note 13 ("Related Party Transactions")each year. We continually monitor the impact of the RFS on our business and evaluate strategies to mitigate the impacts of the RFS program, the administration thereof, and the market volatility for RINs on our business. Refer to Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis” and Part II, Item 8, Note 11 (“Commitments and Contingencies”), of this Report for further discussion about compliance with the RFS.RFS and the potential impacts on our business.
December 31, 20182021 | 7269
Item 8. Financial Statements and Supplementary Data
CVR Energy, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CVR Energy, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2018,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018,2021, based on the criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 21, 201922, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Petroleum Segment’s Inventory Finished Goods Valuation
As described in Note 2 to the financial statements, the Company utilizes the ability-to-bear methodology to determine the valuation of its Petroleum Segment’s finished goods inventories, which was $198 million at December 31, 2021. Management makes certain estimates based on observable inputs, including monthly sales prices and current market prices to determine how much raw materials and production costs are capitalized into inventories. Management then assesses if a lower of cost or net realizable value adjustment is required. Changes in these estimates could have a significant impact on the Company’s valuation of finished goods inventory.
We identified the Company’s Petroleum Segment’s finished goods inventory valuation process as a critical audit matter. The principal consideration for our determination that the inventory valuation process is a critical audit matter is the degree of complexity and subjectivity inherent in determining management’s valuation estimates.
Our audit procedures to evaluate the Company’s valuation of finished goods inventory included the following procedures to test management’s process, among others:
•We tested the design and operating effectiveness of management’s processes and controls for determining the valuation of finished goods inventory.
•We obtained a sample of invoices to verify the accuracy of the production costs used in estimates.
•We tested or evaluated the reasonableness of inputs including sales volumes, monthly sales prices, and current market prices for each product by obtaining third-party market prices and a sample of sales transactions by product to verify the accuracy of the information used by management.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2013.
Dallas, Texas
Kansas City, Missouri
February 21, 2019
22, 2022
December 31, 20182021 | 7372
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of CVR Energy, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018,2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in the 2013 Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2018,2021, and our report dated February 21, 201922, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Kansas City, MissouriDallas, Texas
February 21, 2019
22, 2022
December 31, 20182021 | 7473
CVR Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents (including $113 and $31, respectively, of consolidated variable interest entity (VIE)) | $ | 510 | | | $ | 667 | |
| Accounts receivable (including $88 and $37, respectively, of VIE) | 299 | | | 178 | |
| Inventories (including $52 and $42, respectively, of VIE) | 484 | | | 298 | |
| Prepaid expenses and other current assets (including $9 and $8, respectively, of VIE) | 76 | | | 259 | |
| | | |
| | | |
| | | |
| Total current assets | 1,369 | | | 1,402 | |
| Property, plant and equipment, net (including $850 and $898, respectively, of VIE) | 2,273 | | | 2,240 | |
| | | |
| | | |
| | | |
| | | |
| Other long-term assets (including $14 and $17, respectively, of VIE) | 264 | | | 336 | |
| Total assets | $ | 3,906 | | | $ | 3,978 | |
| LIABILITIES AND EQUITY |
| Current liabilities: | | | |
| Note payable and finance lease obligations (including $0 and $2, respectively, of VIE) | $ | 6 | | | $ | 8 | |
| | | |
| Accounts payable (including $50 and $25, respectively, of VIE) | 409 | | | 282 | |
| | | |
| | | |
| | | |
| | | |
| Other current liabilities (including $111 and $49, respectively, of VIE) | 741 | | | 369 | |
| Total current liabilities | 1,156 | | | 659 | |
| Long-term liabilities: | | | |
| Long-term debt and finance lease obligations, net of current portion (including $611 and $634, respectively, of VIE) | 1,654 | | | 1,683 | |
| Deferred income taxes | 268 | | | 368 | |
| Other long-term liabilities (including $12 and $8, respectively, of VIE) | 58 | | | 49 | |
| Total long-term liabilities | 1,980 | | | 2,100 | |
| Commitments and contingencies (See Note 11) | 0 | | 0 |
| | | |
| CVR stockholders’ equity: | | | |
| Common stock $0.01 par value per share, 350,000,000 shares authorized, 100,629,209 and 100,629,209 shares issued as of December 31, 2021 and 2020, respectively | 1 | | | 1 | |
| Additional paid-in-capital | 1,510 | | | 1,510 | |
| Retained deficit | (956) | | | (490) | |
| Treasury stock, 98,610 shares at cost | (2) | | | (2) | |
| | | |
| Total CVR stockholders’ equity | 553 | | | 1,019 | |
| Noncontrolling interest | 217 | | | 200 | |
| Total equity | 770 | | | 1,219 | |
| Total liabilities and equity | $ | 3,906 | | | $ | 3,978 | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents (including $415 and $223, respectively, of consolidated variable interest entities (VIEs)) | $ | 668 |
| | $ | 482 |
|
Accounts receivable of VIEs
| 169 |
| | 179 |
|
| Inventories of VIEs | 380 |
| | 369 |
|
Prepaid expenses and other current assets (including $56 and $30, respectively, of VIEs)
| 76 |
| | 48 |
|
| Total current assets | 1,293 |
| | 1,078 |
|
Property, plant and equipment, net of accumulated depreciation (including $2,429 and $2,543, respectively, of VIEs)
| 2,445 |
| | 2,588 |
|
Other long-term assets (including $162 and $137, respectively, of VIEs)
| 169 |
| | 141 |
|
| Total assets | $ | 3,907 |
| | $ | 3,807 |
|
| LIABILITIES AND EQUITY |
| Current liabilities: | | | |
Note payable and capital lease obligations of VIEs
| $ | 3 |
| | $ | 2 |
|
Accounts payable (including $317 and $329, respectively, of VIEs)
| 320 |
| | 334 |
|
Other current liabilities (including $154 and $181, respectively, of VIEs)
| 173 |
| | 208 |
|
| Total current liabilities | 496 |
| | 544 |
|
| Long-term liabilities: | | | |
Long-term debt and capital lease obligations of VIEs, net of current portion
| 1,167 |
| | 1,164 |
|
| Deferred income taxes | 362 |
| | 386 |
|
| Other long-term liabilities (including $7 and $4, respectively, of VIEs) | 14 |
| | 9 |
|
| Total long-term liabilities | 1,543 |
| | 1,559 |
|
| Commitments and contingencies (See Note 11) |
| |
|
| Equity: | | | |
| CVR stockholders’ equity: | | | |
| Common stock $0.01 par value per share, 350,000,000 shares authorized, 100,629,209 shares issued (86,929,660 shares issued as of December 31, 2017) | $ | 1 |
| | $ | 1 |
|
| Additional paid-in-capital | 1,473 |
| | 1,197 |
|
| Retained deficit | (226 | ) | | (277 | ) |
| Treasury stock, 98,610 shares at cost | (2 | ) | | (2 | ) |
| Total CVR stockholders’ equity | 1,246 |
| | 919 |
|
| Noncontrolling interest | 622 |
| | 785 |
|
| Total equity | 1,868 |
| | 1,704 |
|
| Total liabilities and equity | $ | 3,907 |
| | $ | 3,807 |
|
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 20182021 | 7574
CVR Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions, except per share data) | 2021 | | 2020 | | 2019 |
| Net sales | $ | 7,242 | | | $ | 3,930 | | | $ | 6,364 | |
| Operating costs and expenses: | | | | | |
| Cost of materials and other | 6,185 | | | 3,373 | | | 4,851 | |
| Direct operating expenses (exclusive of depreciation and amortization) | 569 | | | 478 | | | 533 | |
| Depreciation and amortization | 270 | | | 268 | | | 278 | |
| Cost of sales | 7,024 | | | 4,119 | | | 5,662 | |
| | | | | |
| Selling, general and administrative expenses (exclusive of depreciation and amortization) | 119 | | | 86 | | | 117 | |
| Depreciation and amortization | 9 | | | 10 | | | 9 | |
| Loss (gain) on asset disposal | 3 | | | 7 | | | (4) | |
| Goodwill impairment | — | | | 41 | | | — | |
| | | | | |
| Operating income (loss) | 87 | | | (333) | | | 580 | |
| Other (expense) income: | | | | | |
| Interest expense, net | (117) | | | (130) | | | (102) | |
| | | | | |
| Investment income on marketable securities | 81 | | | 41 | | | — | |
| Other income, net | 15 | | | 7 | | | 13 | |
| | | | | |
| Income (loss) before income tax expense | 66 | | | (415) | | | 491 | |
| Income tax (benefit) expense | (8) | | | (95) | | | 129 | |
| Net income (loss) | 74 | | | (320) | | | 362 | |
| Less: Net income (loss) attributable to noncontrolling interest | 49 | | | (64) | | | (18) | |
| Net income (loss) attributable to CVR Energy stockholders | $ | 25 | | | $ | (256) | | | $ | 380 | |
| | | | | |
| Basic and diluted earnings (loss) per share | $ | 0.25 | | | $ | (2.54) | | | $ | 3.78 | |
| | | | | |
| Dividends declared per share | $ | 4.89 | | | $ | 1.20 | | | $ | 3.05 | |
| | | | | |
| Weighted-average common shares outstanding: | | | | | |
| Basic and diluted | 100.5 | | | 100.5 | | | 100.5 | |
| | | | | |
|
| | | | | | | | | | | |
| | For the Twelve Months Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| (in millions) | |
| Net sales | $ | 7,124 |
| | $ | 5,988 |
| | $ | 4,782 |
|
| Operating costs and expenses: | | | | | |
| Cost of materials and other (exclusive of depreciation and amortization shown below) | 5,683 |
| | 4,953 |
| | 3,867 |
|
| Direct operating expenses (exclusive of depreciation and amortization shown below) | 523 |
| | 598 |
| | 541 |
|
| Depreciation and amortization | 202 |
| | 203 |
| | 184 |
|
| Cost of sales | $ | 6,408 |
| | $ | 5,754 |
| | $ | 4,592 |
|
| Selling, general and administrative expenses | 112 |
| | 113 |
| | 110 |
|
| Depreciation and amortization | 11 |
| | 11 |
| | 9 |
|
| Loss on asset disposals | 6 |
| | 3 |
| | 1 |
|
| Operating income | $ | 587 |
| | $ | 107 |
| | $ | 70 |
|
| Other income (expense): | | | | | |
| Interest expense, net | (102 | ) | | (109 | ) | | (83 | ) |
| Other income, net | 15 |
| | 2 |
| | 2 |
|
| Income (loss) before income taxes | $ | 500 |
| | $ | — |
| | $ | (11 | ) |
| Income tax expense (benefit) | 89 |
| | (217 | ) | | (20 | ) |
| Net income | $ | 411 |
| | $ | 217 |
| | $ | 9 |
|
| Less: Net income (loss) attributable to noncontrolling interest | 122 |
| | (18 | ) | | (16 | ) |
| Net income attributable to CVR Energy stockholders | 289 |
| | 235 |
| | 25 |
|
| | | | | | |
| Basic and diluted earnings per share | $ | 3.12 |
| | $ | 2.70 |
| | $ | 0.28 |
|
| Dividends declared per share | $ | 2.50 |
| | $ | 2.00 |
| | $ | 2.00 |
|
| | | | | | |
| Weighted-average common shares outstanding: | | | | | |
| Basic and Diluted | 92.5 |
| | 86.8 |
| | 86.8 |
|
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 20182021 | 7675
CVR Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stockholders | | | | |
| (in millions, except share data) | Shares Issued | |
Common Stock | | Additional Paid-In Capital | | Retained
Deficit | | Treasury Stock | | | | Total CVR Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| Balance at December 31, 2018 | 100,629,209 | | | $ | 1 | | | $ | 1,474 | | | $ | (187) | | | $ | (2) | | | | | $ | 1,286 | | | $ | 657 | | | $ | 1,943 | |
| | | | | | | | | | | | | | | | | |
| Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (306) | | | — | | | | | (306) | | | — | | | (306) | |
| Distributions from CVR Partners to public unitholders | — | | | — | | | — | | | — | | | — | | | | | — | | | (30) | | | (30) | |
| Acquisition of CVR Refining non-controlling interest | — | | | — | | | (2) | | | — | | | — | | | | | (2) | | | (334) | | | (336) | |
| | | | | | | | | | | | | | | | | |
| Effect of turnaround accounting change | — | | | — | | | 35 | | | — | | | — | | | | | 35 | | | — | | | 35 | |
| | | | | | | | | | | | | | | | | |
| Net income (loss) | — | | | — | | | — | | | 380 | | | — | | | | | 380 | | | (18) | | | 362 | |
| Balance at December 31, 2019 | 100,629,209 | | | 1 | | | 1,507 | | | (113) | | | (2) | | | | | 1,393 | | | 275 | | | 1,668 | |
| | | | | | | | | | | | | | | | | |
| Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (121) | | | — | | | | | (121) | | | — | | | (121) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | 3 | | | — | | | — | | | | | 3 | | | (11) | | | (8) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net loss | — | | | — | | | — | | | (256) | | | — | | | | | (256) | | | (64) | | | (320) | |
| Balance at December 31, 2020 | 100,629,209 | | | 1 | | | 1,510 | | | (490) | | | (2) | | | | | 1,019 | | | 200 | | | 1,219 | |
| Dividends paid to CVR Energy stockholders | — | | | — | | | — | | | (492) | | | — | | | | | (492) | | | — | | | (492) | |
| Distributions from CVR Partners to public unitholders | — | | | — | | | — | | | — | | | — | | | | | — | | | (31) | | | (31) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Changes in equity due to CVR Partners’ common unit repurchases | — | | | — | | | — | | | — | | | — | | | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
| Other | — | | | — | | | — | | | 1 | | | — | | | | | 1 | | | — | | | 1 | |
| Net income | — | | | — | | | — | | | 25 | | | — | | | | | 25 | | | 49 | | | 74 | |
| Balance at December 31, 2021 | 100,629,209 | | | $ | 1 | | | $ | 1,510 | | | $ | (956) | | | $ | (2) | | | | | $ | 553 | | | $ | 217 | | | $ | 770 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stockholders | | | | |
| | Shares Issued | |
Common Stock | | Additional Paid-In Capital | | Retained Deficit | | Treasury Stock | | Total CVR Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| (in millions, except share data) | |
| Balance at December 31, 2015 | 86,929,660 |
| | $ | 1 |
| | $ | 1,174 |
| | $ | (189 | ) | | $ | (2 | ) | | $ | 984 |
| | $ | 616 |
| | $ | 1,600 |
|
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (174 | ) | | — |
| | (174 | ) | | — |
| | (174 | ) |
| Distributions from CVR Partners to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (41 | ) | | (41 | ) |
| Impact of CVR Partners’ common units issuance for the East Dubuque Merger, net of tax of $20 | — |
| | — |
| | 23 |
| | — |
| | — |
| | 23 |
| | 293 |
| | 316 |
|
| Net income (loss) | — |
| | — |
| | — |
| | 25 |
| | — |
| | 25 |
| | (16 | ) | | 9 |
|
| Balance at December 31, 2016 | 86,929,660 |
| | 1 |
| | 1,197 |
| | (338 | ) | | (2 | ) | | 858 |
| | 852 |
| | 1,710 |
|
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (174 | ) | | — |
| | (174 | ) | | — |
| | (174 | ) |
| Distributions from CVR Partners to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
| Distributions from CVR Refining to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (47 | ) | | (47 | ) |
| Net income (loss) | — |
| | — |
| | — |
| | 235 |
| | — |
| | 235 |
| | (18 | ) | | 217 |
|
| Balance at December 31, 2017 | 86,929,660 |
| | 1 |
| | 1,197 |
| | (277 | ) | | (2 | ) | | 919 |
| | 785 |
| | 1,704 |
|
| Exchange offer impact | 13,699,549 |
| | — |
| | 276 |
| | — |
| | — |
| | 276 |
| | (192 | ) | | 84 |
|
| Dividends paid to CVR Energy stockholders | — |
| | — |
| | — |
| | (238 | ) | | — |
| | (238 | ) | | — |
| | (238 | ) |
| Distributions from CVR Refining to public unitholders | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (93 | ) | | (93 | ) |
| Net income | — |
| | — |
| | — |
| | 289 |
| | — |
| | 289 |
| | 122 |
| | 411 |
|
| Balance at December 31, 2018 | 100,629,209 |
| | $ | 1 |
| | $ | 1,473 |
| | $ | (226 | ) | | $ | (2 | ) | | $ | 1,246 |
| | $ | 622 |
| | $ | 1,868 |
|
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 20182021 | 7776
CVR Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 74 | | | $ | (320) | | | $ | 362 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 279 | | | 278 | | | 287 | |
| Loss on lower of cost or net realizable value adjustments | — | | | 59 | | | — | |
| Goodwill impairment | — | | | 41 | | | — | |
| Deferred income taxes | (98) | | | (30) | | | 24 | |
| (Gain) loss on marketable securities | (81) | | | (34) | | | — | |
| Loss (gain) on asset disposal | 3 | | | 7 | | | (4) | |
| (Gain) loss on derivatives | (16) | | | 10 | | | 14 | |
| Share-based compensation | 46 | | | 4 | | | 17 | |
| Other non-cash items | 12 | | | 10 | | | 6 | |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | (91) | | | 31 | | | (40) | |
| Inventories | (182) | | | 9 | | | (10) | |
| Prepaid expenses and other current assets | 12 | | | (28) | | | 16 | |
| | | | | |
| Accounts payable | 122 | | | (121) | | | 94 | |
| Deferred revenue | 27 | | | (2) | | | (15) | |
| Other current liabilities | 290 | | | 178 | | | (1) | |
| Other long-term assets and liabilities | (1) | | | (2) | | | (3) | |
| Net cash provided by operating activities | 396 | | | 90 | | | 747 | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (224) | | | (124) | | | (121) | |
| Turnaround expenditures | (5) | | | (159) | | | (38) | |
| | | | | |
| Proceeds from sale of assets | 7 | | | 1 | | | 37 | |
| Acquisition of pipeline assets | (20) | | | — | | | — | |
| | | | | |
| Investment in marketable securities | 3 | | | (140) | | | — | |
| Other investing activities | 1 | | | (1) | | | 1 | |
| Net cash used in investing activities | (238) | | | (423) | | | (121) | |
| Cash flows from financing activities: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Proceeds from issuance of senior secured notes | 550 | | | 1,000 | | | — | |
| Principal payments on senior secured notes | (582) | | | (500) | | | — | |
| Call premium on extinguishment of debt | — | | | (5) | | | — | |
| Repurchase of CVR Partners common units | (1) | | | (7) | | | — | |
| Acquisition of CVR Refining common units | — | | | — | | | (301) | |
| Dividends to CVR Energy’s stockholders | (241) | | | (121) | | | (306) | |
| | | | | |
| Distributions to CVR Partners’ noncontrolling interest holders | (31) | | | — | | | (30) | |
| Other financing activities | (10) | | | (12) | | | (5) | |
| Net cash (used in) provided by financing activities | (315) | | | 355 | | | (642) | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (157) | | | 22 | | | (16) | |
| Cash and cash equivalents and restricted cash, beginning of period | 674 | | | 652 | | | 668 | |
| Cash and cash equivalents and restricted cash, end of period | $ | 517 | | | $ | 674 | | | $ | 652 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| | |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 411 |
| | $ | 217 |
| | $ | 9 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 213 |
| | 214 |
| | 193 |
|
| Deferred income taxes | 59 |
| | (217 | ) | | (84 | ) |
| Loss on asset disposals | 6 |
| | 3 |
| | 1 |
|
| Share-based compensation | 16 |
| | 19 |
| | 9 |
|
| Other items | 3 |
| | 7 |
| | 6 |
|
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | 56 |
| | (27 | ) | | (48 | ) |
| Inventories | (9 | ) | | (40 | ) | | (9 | ) |
| Prepaid expenses and other current assets | (29 | ) | | 34 |
| | (3 | ) |
| Due to (from) parent | 2 |
| | (16 | ) | | 22 |
|
| Accounts payable | (23 | ) | | 87 |
| | (10 | ) |
| Deferred revenue | 11 |
| | 1 |
| | (20 | ) |
| Other current liabilities | (104 | ) | | (113 | ) | | 203 |
|
| Other long-term assets and liabilities | 8 |
| | (1 | ) | | (2 | ) |
| Net cash provided by operating activities | 620 |
| | 168 |
| | 267 |
|
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (102 | ) | | (120 | ) | | (133 | ) |
Acquisition of CVR Nitrogen, net of cash acquired
| — |
| | — |
| | (64 | ) |
Investment in affiliates, net of return of investment
| — |
| | (76 | ) | | (5 | ) |
| Other investing activities | 2 |
| | — |
| | 1 |
|
| Net cash used in investing activities | (100 | ) | | (196 | ) | | (201 | ) |
| Cash flows from financing activities: | | | | | |
Proceeds on issuance of 2023 Notes, net of original issue discount
| — |
| | — |
| | 629 |
|
| Principal and premium payments on 2021 Notes | — |
| | — |
| | (322 | ) |
| Payments of revolving debt | — |
| | — |
| | (49 | ) |
Principal payments on CRNF credit facility
| — |
| | — |
| | (125 | ) |
| Dividends to CVR Energy’s stockholders | (238 | ) | | (174 | ) | | (174 | ) |
| Distributions to CVR Refining’s noncontrolling interest holders | (93 | ) | | (47 | ) | | — |
|
| Distributions to CVR Partners’ noncontrolling interest holders | — |
| | (2 | ) | | (42 | ) |
| Other financing activities | (3 | ) | | (3 | ) | | (12 | ) |
| Net cash used in financing activities | (334 | ) | | (226 | ) | | (95 | ) |
| Net increase (decrease) in cash and cash equivalents | 186 |
| | (254 | ) | | (29 | ) |
| Cash and cash equivalents, beginning of period | 482 |
| | 736 |
| | 765 |
|
| Cash and cash equivalents, end of period | $ | 668 |
| | $ | 482 |
| | $ | 736 |
|
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 20182021 | 7877
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Nature of Business
Organization
CVR Energy, Inc. (“CVR Energy,” “CVR,” “we,” “us,” “our,” or the “Company”) is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP (“CVR(the “Petroleum Segment” or “CVR Refining” or “CVRR”) and CVR Partners, LP (“CVR(the “Nitrogen Fertilizer Segment” or “CVR Partners”). CVR Refining is an independent petroleum refiner and marketer of high value transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of urea ammonium nitrate (“UAN”) and ammonia. The Company’s operations include two business segments: the petroleum segment and the nitrogen fertilizer segment. CVR’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “CVI.”
In August 2018, CVR Energy completed an exchange offer whereby public unitholders tendered a total of 21,625,106 CVR Refining common units in exchange for a total of 13,699,549 shares of CVR Energy common stock (the “CVRR Unit Exchange”). In connection with the CVRR Unit Exchange, the Company incurred a total of $0.7 million of issuance costs, which were capitalized to additional paid-in-capital. Further, due to the change in our ownership of CVR Refining, we recognized an increase of $276 million to additional paid-in-capital and $84 million in deferred tax assets. Following the CVRR Unit Exchange, Icahn Enterprises L.P. (“IEP”) and its affiliates (“IEP”) owned approximately 71% of the Company’s outstanding common shares.shares as of December 31, 2021.
Stock Repurchase Program
On October 23, 2019, the Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program enables the Company to repurchase up to $300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory and other considerations. While the Stock Repurchase Program currently has a duration of four years, it does not obligate the Company to acquire any stock and may be terminated by the Board of Directors at any time. We did not repurchase any of our common stock during the years ended December 31, 2021, 2020, and 2019.
CVR Refining, LP
As of December 31, 2018, public security holders held approximately 16% of CVR Refining’s common units that were traded on the NYSE under “CVRR” (including units owned by IEP and its affiliates, representing 3.9% of CVR Refining’s outstanding common units). The Company and CVR Refining Holdings, LLC (“CVR Refining Holdings”), an indirect wholly-owned subsidiary of CVR, owned 100% of CVR Refining’s general partner interest and approximately 81% of CVR Refining’s outstanding limited partner interests. The consolidated results of operations and financial position of CVR Refining are reflected as CVR’s petroleum segment (the “Petroleum Segment”).
On January 17, 2019, the general partner of CVRRCVR Refining assigned to the Company its right to purchase all of the issued and outstanding CVRRCVR Refining common units not already owned by CVRR’sCVR Refining’s general partner or its affiliates. On January 29, 2019, the Company purchased all remaining CVRRCVR Refining common units not already owned by the Company or its affiliates for a cash purchase price of $10.50 per unit (the “Call Price”), or approximately $241 million in the aggregate (the “Public Unit Purchase”). In conjunction with the exercise of its call right for all CVRRCVR Refining common units not already owned by the Company or its affiliates, the Company entered into a purchase agreement with American Entertainment Properties Corporation (“AEP”) and IEP, pursuant to which, on January 29, 2019, all of the Common Units held by AEP and IEP were purchased by the Company for a cash price per unit equal to the Call Price, or approximately $60 million in the aggregate (the “Affiliate Unit Purchase” together with the Public Unit Purchase, the “CVRR Unit Purchase”). The total purchase price of $301 million was funded with approximately $105 million in borrowings under a new credit agreement entered into by the Company on January 29, 2019, with the remaining amount being funded from the Company’s cash on hand. Refer to Note 5Amounts drawn under the new credit agreement were fully repaid in February 2019. The consolidated results of operations and financial position of CVR Refining are reflected as CVR’s Petroleum Segment. Following this transaction, CVR Refining became a wholly-owned subsidiary of the Company and, therefore, is no longer accounted for as a variable interest entity (“Long-Term Debt”VIE”) for further information on the credit agreement.
. Effective February 8, 2019, CVRR’sCVR Refining’s reporting obligations under the Exchange Act were suspended. Upon closing of the CVRR Unit Purchase, the Company executed a full and unconditional guarantee of CVRR’s senior notes due 2022 (the “2022 Senior Notes”). Pursuant to SEC regulations, the Company has elected to provide condensed consolidating financial statements in lieu of providing standalone CVRR financial statements. Refer to Note 14, (“Guarantor Financial Information”) for further discussion and the condensed consolidating financial statements.
CVR Partners, LP
Interest Holders - As of December 31, 2018,2021, public security holderscommon unitholders held approximately 66%64% of CVR Partners’ outstanding common units, that are traded on the NYSE under “UAN.” Coffeyville Resources,and CVR Services, LLC (“CRLLC”CVR Services”), a wholly-owned subsidiary of CVR Energy, held approximately 34%36% of CVR Partners’ outstanding common units. In addition, CRLLC ownsCVR Services held 100% of CVR
Partners’ general partner, CVR GP, LLC (“CVR GP”), which held a non-economic general partner interest in CVR Partners as of December 31, 20182021. Following the acquisition of the non-controlling interest in CVR Refining in January 2019, the non-controlling interest reflected on the Consolidated Balance Sheets of CVR is only impacted by the net income of, and distributions from, CVR Partners.
Unit Repurchase Program - On May 6, 2020, CVR Partners announced that the board of directors of its general partner (the “UAN GP Board”), on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”).
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Unit Repurchase Program enabled CVR Partners to repurchase up to $10 million of its common units. On February 22, 2021, the UAN GP Board authorized an additional $10 million for the Unit Repurchase Program. During the year ended December 31, 2021, CVR Partners repurchased 24,378 common units on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $1 million, inclusive of transaction costs, or an average price of $21.70 per common unit. During the year ended December 31, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of CVR Partners’s common units that was effective as of November 23, 2020, CVR Partners repurchased 623,177 common units, respectively, at a cost of $7 million, inclusive of transaction costs, or an average price of $11.35 per common unit. As of December 31, 2021, CVR Partners had $12 million in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to acquire any common units and may be cancelled or terminated by the UAN GP Board at any time.
Partners’ general partner,
As a result of these repurchases, and the resulting change in CVR GP, LLC, which holds a general partner interest. The consolidated results of operations and financial positionEnergy’s ownership of CVR Partners are reflectedwhile maintaining control, CVR Energy recognized a nominal increase to additional paid-in capital from the reduction of non-controlling interests totaling $0.1 million and the recognition of a deferred tax liability totaling $0.1 million from changes in its book versus tax basis in CVR Partners as our nitrogen fertilizer segment (the “Nitrogen Fertilizer Segment”).of December 31, 2021. CVR Energy recognized an increase of $3 million to additional paid-in capital from the non-cash reduction of non-controlling interests totaling $4 million and the recognition of a deferred tax liability totaling $1 million from changes in its book versus tax basis in CVR Partners as of December 31, 2020.
Subsequent Events
The Company evaluated subsequent events, if any, that would require an adjustment to the Company’s consolidated financial statements or require disclosure in the notes to the consolidated financial statements through the date of issuance of the consolidated financial statements. Where applicable, the notes to these consolidated financial statements have been updated to discuss all significant subsequent events which have occurred.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), include the accounts of the Company and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. The ownership interests of noncontrolling investors in the Company’s subsidiaries are recorded as noncontrolling interests. CVR Energy has not recognized any other comprehensive income for the periods ended December 31, 2018, 20172021, 2020, and 2016.2019.
CVR Refining and CVR Partners areis considered variable interest entities (“VIE”).a VIE. As the 100% owner of the general partner for both CVR Refining andof CVR Partners, the Company has the sole ability to direct the activities that most significantly impact the economic performance of both partnershipsCVR Partners and is considered to be the primary beneficiary. In January 2019, following the CVRR Unit Purchase, CVR Refining iswas no longer considered to be a VIE and will beis accounted for as a wholly-owned subsidiary.
Investments in entities over which the Company has significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents CVR Energy’s proportionate share of net income generated by the equity method investees and is recorded in otherOther income, net on the Company’s Consolidated Statements of Operations.
Reclassifications
Certain reclassifications have been made within the consolidated financial statements for prior periods to conform with current presentation.
Use of Estimates
TheseThe consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”),GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are reviewed on an
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit, and investments in highly liquid money market accounts, and debt instruments with original maturities of three months or less.
Restricted Cash
Restricted cash consists of cash that must be maintained in a commercial escrow account pending resolution of certain litigation matters and is discussed further in Note 11 (“Commitments and Contingencies”).
Accounts Receivable, net
Accounts receivable, net primarily consist of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also included within accounts receivable of the Nitrogen Fertilizer Segment are unbilled fixed price contracts recognized with the adoption of ASC 606 (defined below) aswhich is discussed further within the “Recent Accounting Pronouncements - Adoption of Revenue Recognition Standard” section to this note below.Note 7 (“Revenue”).
Allowances for doubtful accounts are generally recorded when it becomes probable the receivable will not be collected and is booked to bad debt expense. The largest concentration of credit for any one customer at December 31, 2018 and 2017 was approximately 12%8% and 11%, respectively, of the net accounts receivable balance.
balance at December 31, 2018 | 80
Table of Contents2021 and 2020, respectively. During the year ended December 31, 2021, 2020 and 2019, the Company had 0minal bad debt expense.CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Inventories
Inventories consist primarily of domestic and foreign crude oil, blending stock and components, work-in-progress, fertilizer products, and refined fuels and by-products. All inventories are valued at the lower of the first-in, first-outGAAP First-In, First-Out (“FIFO”) cost, or net realizable value. RefineryThe Petroleum Segment’s unfinished and finished products inventory values were determined using the ability-to-bear methodology. Other inventories in the Petroleum and Nitrogen Fertilizer Segments, including other raw materials, spare parts, and supplies, are valued at the lower of moving-average cost, which approximates FIFO, or net realizable value. The cost of inventories includes inbound freight costs. At
The carrying amounts of the Petroleum Segment’s inventories exceeded their net realizable value (market value) by $58 million resulting in the recognition of a lower of cost or net realizable value adjustment as of March 31, 2020. The $58 million loss represents the difference between the carrying value of the Petroleum Segment’s inventories accounted for using the FIFO method and selling prices for refined products subsequent to March 31, 2020. No adjustment was necessary as of December 31, 2018 and 2017, inventories on the Consolidated Balance Sheets related to the Nitrogen Fertilizer segment included depreciation of approximately $6 million and $4 million, respectively.2021 or December 31, 2020.
Inventories consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| Finished goods | $ | 215 | | | $ | 133 | |
| Raw materials | 177 | | | 83 | |
| In-process inventories | 20 | | | 16 | |
| Parts and supplies | 72 | | | 66 | |
| Total inventories | $ | 484 | | | $ | 298 | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Finished goods | $ | 186 |
| | $ | 172 |
|
| Raw materials | 105 |
| | 98 |
|
| In-process inventories | 12 |
| | 22 |
|
| Parts and supplies | 77 |
| | 77 |
|
| Total Inventories | $ | 380 |
| | $ | 369 |
|
Certain reclassifications have been made on the Consolidated Balance Sheets to reclassify precious metals from inventoryAt December 31, 2021 and 2020, inventories related to the property, plantNitrogen Fertilizer Segment included depreciation of approximately $3 million and equipment financial statement line item in the amount of $15$2 million, for the year ended respectively.
December 31, 2018. The prior year balance2021 | 80
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment, net
Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Expenditures for improvements that increase economic benefit or returns and/or extend useful life are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for significant asset classes are as follows:
|
| | | | | | | |
| Asset | | Range of Useful Lives, in Years |
| Land and improvements | 15 | 10 to 30 |
| Buildings and improvements | 20 | 1 to 30 |
| Machinery and equipment | 5 | 1 to 30 |
| Furniture and fixtures | | 3 to 10 |
| Right-of-use (“ROU”) finance leases | | 3 to 18 |
| Other | | 5 to 30 |
Property, plant and equipment, net consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| Machinery and equipment | $ | 4,033 | | | $ | 3,881 | |
| Buildings and improvements | 88 | | | 88 | |
| ROU finance leases | 81 | | | 80 | |
| Land and improvements | 71 | | | 47 | |
| Furniture and fixtures | 37 | | | 38 | |
| Construction in progress | 142 | | | 100 | |
| Other | 15 | | | 15 | |
| 4,467 | | | 4,249 | |
| Less: Accumulated depreciation | (2,194) | | | (2,009) | |
| Total property, plant and equipment, net | $ | 2,273 | | | $ | 2,240 | |
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Land and improvements | $ | 43 |
| | $ | 47 |
|
| Buildings | 82 |
| | 83 |
|
| Machinery and equipment | 3,754 |
| | 3,734 |
|
| Other | 203 |
| | 155 |
|
| | 4,082 |
| | 4,019 |
|
| Less: Accumulated depreciation | 1,637 |
| | 1,431 |
|
| Total Property, plant and equipment, net | $ | 2,445 |
| | $ | 2,588 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leasehold improvements and assets held under capitalfinance leases are depreciated or amortized on the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expenses are reported in directDirect operating expenses (exclusive of depreciation and amortization) in the Company’s Consolidated Statements of Operations.
DuringOn May 21, 2019, a subsidiary of CVR Energy sold its crude oil storage terminal located in Cushing, Oklahoma and related assets (the “Terminal”). As part of this transaction, the period,Company received cash consideration of $43 million for the Petroleum Segment began actively marketing certain assets withTerminal and related crude oil inventories resulting in a carrying valuerecognition of $33 million at December 31, 2018.a gain on sale of $10 million. The carrying value of thesethe inventory sold as part of this transaction has been presented on a net basis, with the proceeds on sale, within the net cash used in investing section of the Consolidated Statements of Cash Flows.
As of December 31, 2021, the Company had not identified the existence of an impairment indicator for its long-lived asset groups as outlined under Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment.
Leases
At inception, the Company determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as operating lease ROU assets held for sale were included inwithin Other Long-term Assetslong-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on the Company’s Condensedour Consolidated Balance Sheets. No loss has beenFinance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities within Note payable and finance lease obligations and Long-term debt and finance lease obligations, net of current portion on our Consolidated Balance Sheets. Leases with an
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
initial expected term of 12 months or less are considered short-term and are not recorded on our Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the expected lease term.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized upon designationat the commencement date based on the present value of theseminimum lease payments over the lease term using an incremental borrowing rate with a maturity similar to the lease term, as our leases do not generally provide an implicit rate. The lease term is modified to reflect options to extend or terminate the lease when it is reasonably certain we will exercise such option. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise, in which case the depreciation policy in the “Property, Plant and Equipment, net” section above is applicable. The periodic lease payments are treated as held for sale.payments of the lease obligation and interest is recorded as interest expense.
Deferred Financing Costs
Lender and other third-party costs associated with debt issuances are deferred and amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Deferred financing costs related to line-of-credit arrangements are amortized using the straight-line method through the terminationmaturity date of the facility. The deferred financing costs are included net within long-termLong-term debt and finance lease obligations, net of current portion and in otherOther long-term assetsliabilities for the line-of-credit arrangements where no debt balance exists.
Impairment of Long-Lived Assets and Goodwill
Long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assetsasset exceeds their fair value. Assets to be disposed of by sale are reported at the lower of their carrying value or fair value less cost to sell.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, andwhile intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company uses November 1 of each year is used as theits annual valuation date for its goodwill impairment test.
One of the reporting units associated with our Nitrogen Fertilizer Segment’s Coffeyville, Kansas facility (the “Coffeyville Fertilizer Facility”) had a goodwill balance of $41 million at December 31, 2019. During the second quarter of 2020, following the completion of the spring planting season, the market pricing for ammonia and UAN, the Nitrogen Fertilizer Segment’s 2 primary products, experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and soybean given reduced ethanol production and broader economic conditions which may negatively impact demand. Therefore in connection with the preparation of the financial statements for the three months ended June 30, 2020, given the pricing declines experienced in the second quarter of 2020, further muting of our near-term economic recovery assumptions, and market price performance of CVR Partners’ common units, the Company concluded an impairment indicator was present and a triggering event under ASC Topic 350, Intangibles-Goodwill and Other, had occurred as of June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the interim quantitative analysis, it was determined that the estimated fair value of the Coffeyville Fertilizer Facility reporting unit did not exceed its carrying value. As a result, the Company recorded a full, non-cash impairment charge of $41 million during the year ended December 31, 2020.
As there was no goodwill balance at December 31, 2021 or 2020, no annual impairment review was performed. The Company performed its annual impairment review of goodwill for 2018, 20172019 associated with the Coffeyville Fertilizer Facility
CVR Energy, Inc. and 2016Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
reporting unit and concluded there were no impairments. For the period ended December 31, 2017,2019, no events or circumstances were identified which would trigger the performance of a quantitative analysis after reviewing all qualitative factors impacting the reporting unit including improved market conditions, financial results, and financial forecasts from those used in the fair value analysis for December 31, 2018, which resulted in the fair value of the Coffeyville Kansas nitrogen fertilizer business (the “Coffeyville Fertilizer Facility”)Facility reporting unit exceededexceeding its carrying value by approximately 12% based upon the results of the Partnership’s goodwill impairment test. For the period ended December 31, 2018, due to improved market conditions and financial forecasts, the amount by which fair value exceeds the carrying value for the Coffeyville Fertilizer Facility reporting unit is significant.36%.
Loss Contingencies
In the ordinary course of business, the Company may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Company accrues liabilities for these matters if the Company has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. Accrued amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. Refer to Note 11 (“Commitments and Contingencies”) for further discussion.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Environmental, Health & Safety (“EHS”) Matters
The Petroleum Segment and Nitrogen Fertilizer SegmentsSegment are subject to various federal, state, and local EHSenvironmental, health, and safety rules and regulations. Liabilities related to EHS mattersfuture remediation costs of past environmental contamination of properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third partythird-party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change, and such accruals can take into account the legal liability of other parties. Management periodically reviews and, as appropriate, revises its environmental accruals. Environmental expenditures for capital assets are capitalized at the time of the expenditure when such costs provide future economic benefits. Accrued amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. Refer to Note 11 (“Commitments and Contingencies”) for further discussion.
Revenue Recognition
The Company recognizes revenue based on consideration specified in contracts or agreements with customers when performance obligations are satisfied by transferring control over products or services to a customer. The adoption of ASC 606, described below, did not materially change the Company’s revenue recognition patterns which are described below by reportable segment:segment.
•Petroleum Segment - The vast majority of Petroleum Segment contracts contain pricing that is based on the market price for the product at the time of delivery. Obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to customers. Concurrent with the transfer of control, the right to payment for the delivered product is received, the customer accepts the product, and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components. Any pass-through finished goods delivery costs reimbursed by customers are reported in netNet sales, while an offsetting expense is included in costCost of materials and other. Non-monetary product exchanges and certain buy/sell transactions which are entered into in the normal course of business are included on a net cost basis in operating expensesCost of materials and other on the Consolidated Statements of Operations.
•Nitrogen Fertilizer Segment - Revenue is recognized based on consideration specified in contracts or agreements with customers when our customers receiveperformance obligations are satisfied by transferring control of the product.over products or services to a customer. The adoption of ASC Topic 606,Revenue from Contracts with Customers, resulted in the recognition of deferred revenue which represents customer prepayments underand related receivables, on a gross basis, associated with contracts that guarantee a price and supply of nitrogen fertilizer productproducts in quantities expected to be delivered in the normal course of business.
Other considerations - For both segments, excise and other taxes collected from customers and remitted to governmental authorities are excluded from reported revenues.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cost Classifications
Cost of materials and other (exclusive of depreciation and amortization) includes cost of crude oil, other feedstocks, blendstocks, purchased refined products, purchased ammonia, purchased hydrogen, pet coke expenses, renewable identification numbersRenewable Identification Number (“RINs”RIN”) expenses, derivative gaingains or losses, and freight and distribution costs. Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, including applicable share-based compensation expense, property taxes, plant-related maintenance services, including turnaround, and environmental and safety compliance costs, as well as catalyst and chemical costs. Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of labor and other direct expenses associated with the Company’s corporate activities, including accounting, finance, information technology, human resources, legal, and other related administrative functions. For the Company’s Nitrogen Fertilizer Segment, each of these financial statement line items are also impacted by changes in inventory balances.
Certain reclassifications have been made within the Consolidated Statements of Operations to include gain (loss) on derivatives within the Cost of Materials and Other financial statement line item. Prior year balances have been reclassified to conform with the current years presentation. The reclassifications from gain (loss) on derivatives to cost of materials and other totaled $146 million, $(70) million, and $(20) million for the years ended December 31, 2018, 2017, and 2016, respectively.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivatives and Fair Value of Financial Instruments
The Petroleum Segment uses futures contracts, options,swaps, and forward contracts primarily to reduce exposure to changes in crude oil and finished goods product prices to provide economic hedges of inventory positions. These derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815, Derivatives and Hedging, and accordingly are recorded at fair value at the end of each reporting period based on quoted market prices. The Nitrogen Fertilizer Segment may enter into forward contracts with fixed delivery prices to purchase portions of its natural gas requirements. These natural gas contracts are not treated as derivativederivatives under normal purchase and normal sale exclusions. Accordingly, the fair value of these contracts are not recorded at the end of each reporting period. Refer to Note 78 (“DerivativesDerivative Financial Instruments, Investments and Fair Value of Financial Instruments”Measurements”) for further discussion of the Company’s derivative activity.
Other financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. Refer to Note 78 (“DerivativesDerivative Financial Instruments, Investments and Fair Value of Financial Instruments”Measurements”) for further fair value disclosures.
Turnaround Expenses
The direct-expense method of accounting is used for turnaround activities. Turnarounds represent major maintenance activities that require the shutdown of significant parts of a plant to perform necessary inspection, cleaning, repairs, and replacements of assets. Costs incurred for routine repairs and maintenance or unplanned outages at our facilities are expensed as incurred. Planned turnaround activities for the Petroleum Segment vary in frequency dependent on refinery units, but generally occur every four to five years. Theyears, while the frequency of turnarounds in the Nitrogen Fertilizer segmentSegment is every two to three years. Further details of each segment’s turnaround expensing method are discussed below.
Petroleum Segment - The Petroleum Segment follows the deferral method of accounting for turnaround activities. Under the deferral method, the costs of turnarounds are deferred and amortized on a straight-line basis over a four-year period of time, which represents the estimated time until the next turnaround occurs. The deferral method of accounting for turnarounds is considered preferable as it is more consistent with the accounting policy of our peer companies and better reflects the economic substance of the benefits earned from turnaround expenditures. Turnaround costs, and related accumulated amortization, are included in the Consolidated Balance Sheets as Other long-term assets. The amortization expense related to turnaround costs is included in Depreciation and amortization in the Consolidated Statements of Operations. During the years ended December 31, 2021, 2020, and 2019, the Petroleum Segment capitalized $8 million, $155 million, and $38 million, respectively.
Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment follows the direct-expense method of accounting for turnaround activities. Costs associated with these turnaround activities were included in Direct Operating Expensesoperating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations. During the years ended December 31, 2018, 20172021, 2020, and 2016, the Petroleum Segment incurred turnaround expenses of $4 million, $80 million and $31 million, respectively. For the same periods,2019, the Nitrogen Fertilizer Segment incurred turnaround expenses of $6 million, $3 million, $1 million, and $7$10 million, respectively.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Currently, all of the Company’s share-based compensation awards, including those issued by CVR Refining and CVR Partners, are liability-classified and are measured at fair value at the end of each reporting period based on
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the applicable closing unit price. Compensation expense will fluctuate based on changes in the applicable share or unit prices and expense reversals resulting from employee terminations prior to award vesting. Additionally, the Company has issued certain performance unit awards. The fair value of these performance unit awards is recognized as compensation expense only if the attainment of the performance conditions is considered probable. Uncertainties involved in this estimate include continued employment requirements and whether or not the performance conditions will be attained. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and, therefore, are considered reasonably possible of being achieved. If this assumption proves not to be true and the awards do not vest, compensation expense recognized during the performance cycle will be reversed. See Note 9 (“Share-Based Compensation”) for further discussion.
Income Taxes
Income taxes are accounted for utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of the deferred income tax assets, including net operating loss and state tax credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Further,the Company recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in Income tax (benefit) expense.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Earnings Per Share
There were no dilutive awards outstanding during the years ended December 31, 2018, 2017,2021, 2020, and 2016.2019.
Recent Accounting Pronouncements - Adoption of New AccountingIncome Tax Standard
On January 1, 2018,In December 2019, the Company adopted Financial Accounting Standards Board (“FASB”) issued Accounting Standards CodificationStandard Update (“ASC”ASU”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) using the modified retrospective method applied to contracts which were not completed as of January 1, 2018.2019-12, Income Taxes (Topic 740). The standard was applied prospectively and the comparative information for 2017 has not been restated and continues to be reported underASU simplifies the accounting standards in effect for the prior period. The Company did not identify any material differences in its existing revenue recognition methods that require modification under the new standard and, as such, a cumulative effect adjustment of applying the standard using the modified retrospective method was not recorded.
The adoption of ASC 606 resulted in changes to how the Nitrogen Fertilizer Segment accounts for prepaid contracts. Priorincome taxes by removing certain exceptions to the adoption of ASC 606, deferred revenue was recorded upon customer prepayment, however, under the new revenue standard, deferred revenuegeneral principles in Topic 740 and an associated receivable is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional. Due to this change, the adoption of ASC 606 resulted in a $21 million increase to deferred revenue and accounts receivable as of January 1, 2018. After the effect of adoptionmodifies other areas of the new revenue standard, deferred revenue and accounts receivable of CVR Partners were $34 million and $31 million, respectively, as of January 1, 2018.
In additiontopic to the change noted above, the adoption of ASC 606 also resulted in a change in accounting for fees collected from certain customers by the Petroleum Segment that were previously recorded as a reduction to cost of materials and other. The particular fee, the Oil Spill Liability Tax, relates to taxes imposed on refineries as part of the crude oil procurement process, is charged to certain of CVR Refining’s customers on product sales and is required under the new standard to be included in the transaction price. The impact of the change in presentation was an increase of $2 million to net sales and cost of materials and other for the period ended December 31, 2018.
The following table displays the effect of the changes to the Consolidated Balance Sheet as of December 31, 2018 for the adoption of ASC 606. The Company’s Consolidated Statement of Cash Flows was not impacted due to the adoption of ASC 606 for the period ended December 31, 2018.
|
| | | | | | | | | | | |
| (in millions) | December 31, 2018 |
| | As Reported | | Balances without adoption of ASC 606 | | Effect of change |
| Assets | | | | | |
| Accounts Receivable | $ | 169 |
| | $ | 124 |
| | $ | 45 |
|
| Liabilities | | | | | |
| Deferred Revenue (1) | $ | 69 |
| | $ | 24 |
| | $ | 45 |
|
_____________________________
| |
(1) | Deferred Revenues are recorded within the Other Current Liabilities financial statement line item. |
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), creating a new topic, FASB ASC Topic 842, “Leases” (“Topic 842”), which supersedes lease requirements in FASB ASC Topic 840, “Leases”. The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability related to future lease payments and an asset representing its right to use of the underlying asset for the lease term on the balance sheet. Quantitative and qualitative disclosures, including disclosures regarding significant judgments made by management, will be required.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Topic 842 was adopted by the FASB as of January 1, 2019 electing the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. In connection with the adoption of ASC 842, the following elections were made inclarify the application of Topic 842:
UnderGAAP. Certain amendments within the short-term lease exception provided for in the standard ROU assets and related lease liabilities for leases with a term greater than one year were and will be recognized;
The accounting treatment for existing land easements was carried forward;
Lease and non-lease components were and will not be bifurcated for all of the Company’s asset groups; and
The portfolio approach was and will be used in the selection of the discount rate used to calculate minimum lease payments and the related ROU asset and operating lease liability amounts.
Adoption of Topic 842 resulted in the recording of additional ROU assets and lease liabilities of approximately $53 million, in addition to the recognition of a finance lease asset and obligation of approximately $26 million, as of January 1, 2019. The standard will not materially affect the Company’s consolidated net earnings or cash flows.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This standard is effective for the Company beginning January 1, 2020, with early adoption permitted. The amendments in this standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance on its consolidated financial statements, but does not expect adoption will have a material impact on the Company’s consolidated financial position or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. This standard is effective for the Company beginningEffective January 1, 2021, we adopted this ASU with no material impact on the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements - Adoption of Codification Improvements Standard
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The ASU amends various sections of the codification in the FASB’s ongoing efforts to simplify and improve guidance. Effective January 1, 2021, we adopted this ASU with early adoption permitted.no material impact on the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This ASU was issued because, by the end of 2022, banks will no longer be required to report information that is used to determine London Interbank Offered Rate (“LIBOR”), which is used globally by all types of entities. As a result, LIBOR could be discontinued, as well as other interest rates used globally. ASU 2020-04 provides companies with optional expedients for contract modifications under Topics 310, 470, 842, and 815-15, excluded components of certain hedging relationships, fair value hedges, and cash flow hedges, as well as certain exceptions, which are intended to help ease the potential accounting burden associated with transitioning away from these reference rates. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies certain optional expedients and exceptions for contract modifications and hedge accounting. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the effectimpact of adopting this new accounting guidance,standard, but does not expect adoption willit to have a material impact on the Company'sits consolidated financial statements and related disclosures.
(3) Acquisition
On April 1, 2016, CVR Partners acquired the East Dubuque Facility as part of the Agreement and Plan of Merger, dated as of August 9, 2015 (the “East Dubuque Merger”). The East Dubuque Merger was accounted for as an acquisition of a business with CVR Partners as the acquirer. The aggregate merger consideration was approximately $802 million, including the fair value of CVR Partners common units issued of $335 million, cash consideration of $99 million and $368 million fair value of assumed debt. From the date of acquisition, the East Dubuque Facility’s operations contributed net sales of $128 million and an operating loss of $1 million to the Consolidated Statement of Operations for the year ended December 31, 2016.2021 | 85
CVR Energy, Inc. and Subsidiaries (4)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) Equity Method Investments
Foreach of the following investments, CVR Refining has the ability to exercise influence through its participation in the management committees, which make all significant decisions. However, since CVR Refining has equal or proportionate influence over each committee as a joint partner without regard to its economic interest and does not serve as the day-to-day operator, we have determined that these entities should not be consolidated and applyhave applied the equity method of accounting.
•Enable South Central Pipeline, LLC (“Enable JV”, formerly Velocity Pipeline Partners, LLC)) - CVR Refining owns a 40% interest in Enable JV, which operates a 12-inch 26-mile crude oil pipeline with a capacity of approximately 80,000115,000 barrels per day that is connected to the Wynnewood Refinery. The remaining interest in Enable JV is owned by Enable Midstream Partners, LP.LP, which was merged with Energy Transfer LP in December 2021.
•Midway Pipeline, LLC (“Midway JV”) - CVR Refining owns a 50% interest in Midway JV, which operates a 16-inch 100 mile99-mile crude oil pipeline with a capacity of approximately 120,000150,000 barrels per day which connects the Coffeyville Refinery to the Cushing Oklahoma oil hub. The remaining interest in Midway JV is owned by Plains Pipeline, L.P.
| | | | | | | | | | | | | | | | | |
| (in millions) | Enable JV | | Midway JV | | Total |
| Balance at December 31, 2019 | 6 | | | 75 | | | 81 | |
| | | | | |
| Cash Distributions | (4) | | | (6) | | | (10) | |
| Equity income | 4 | | | 5 | | | 9 | |
| Balance at December 31, 2020 | 6 | | | 74 | | | 80 | |
| Cash Distributions | (3) | | | (8) | | | (11) | |
| Equity income | 3 | | | 7 | | | 10 | |
| Balance at December 31, 2021 | $ | 6 | | | $ | 73 | | | $ | 79 | |
(4) Leases
Lease Overview
We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.
Balance Sheet Summary as of December 31, 20182021 and 2020
The following table summarizes the right of use asset and lease liability balances for the Company’s operating and finance leases at December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in millions) | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| ROU assets, net | | | | | | | |
| Pipeline and storage | $ | 17 | | | $ | 23 | | | $ | 15 | | | $ | 26 | |
| Railcars | 6 | | | — | | | 8 | | | — | |
| Real estate and other | 14 | | | 18 | | | 14 | | | 21 | |
| Lease liability | | | | | | | |
| Pipelines and storage | $ | 17 | | | $ | 35 | | | $ | 16 | | | $ | 38 | |
| Railcars | 6 | | | — | | | 8 | | | — | |
| Real estate and other | 14 | | | 19 | | | 14 | | | 22 | |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lease Expense Summary for the Year Ended December 31, 2021, 2020 and 2019
We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the year ended December 31, 2021, 2020, and 2019, we recognized lease expense comprised of the following components:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Operating lease expense | $ | 15 | | | $ | 17 | | | $ | 12 | |
| Finance lease expense: | | | | | |
| Amortization of ROU asset | $ | 6 | | | $ | 6 | | | $ | 7 | |
| Interest expense on lease liability | 5 | | | 6 | | | 6 | |
| Short-term lease expense | $ | 7 | | | $ | 8 | | | $ | 8 | |
Lease Terms and Discount Rates
The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| Weighted-average remaining lease term | 4.1 years | | 7.2 years | | 3.1 years | | 8.1 years |
| Weighted-average discount rate | 5.4 | % | | 9.0 | % | | 5.5 | % | | 9.0 | % |
Maturities of Lease Liabilities
The following summarizes the remaining minimum lease payments through maturity of the Company’s right-of-use assets and liabilities at December 31, 2021:
| | | | | | | | | | | |
| (in millions) | Operating Leases | | Finance Leases |
| Year Ended December 31, | | | |
| 2022 | $ | 14 | | | $ | 11 | |
| 2023 | 12 | | | 10 | |
| 2024 | 8 | | | 10 | |
| 2025 | 3 | | | 10 | |
| 2026 | 1 | | | 10 | |
| Thereafter | 4 | | | 23 | |
| Total lease payments | 42 | | | 74 | |
| Less: imputed interest | (5) | | | (20) | |
| Total lease liability | $ | 37 | | | $ | 54 | |
On July 31, 2020, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a subsidiary of CVR Partners, and Messer LLC (“Messer”) entered into an On-Site Product Supply Agreement (the “Messer Agreement”). On February 21, 2022, CRNF entered into the First Amendment to the On-Site Product Supply Agreement (the “Messer Amendment”, and collectively, the “Amended Messer Agreement”) with Messer. Under the Amended Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Amended Messer Agreement, and CRNF is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen, nitrogen, and dry air from Messer does not meet the definition of a lease under FASB Accounting Standards Codification (“ASC”) Topic 842, Leases, (“Topic 842”), as CRNF does not expect to receive substantially all of the output of Messer’s on-site production from its air separation unit over the life of the Amended Messer Agreement. The Amended Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Fertilizer Facility. This arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all
|
| | | | | | | | | | | | |
| (in millions) | Enable JV | | Midway JV | | Total |
| Balance at December 31, 2016 | 6 |
| — |
| — |
| | 6 |
|
| Contributions | 1 |
| — |
| 76 |
| | 77 |
|
| Cash Distributions | (1 | ) | | — |
| | (1 | ) |
| Equity income | — |
| — |
| 1 |
| | 1 |
|
| Balance at December 31, 2017 | 6 |
| | 77 |
| | 83 |
|
| Cash Distributions | (2 | ) | | (5 | ) | | (7 | ) |
| Equity income | 2 |
| | 6 |
| | 8 |
|
| Balance at December 31, 2018 | $ | 6 |
| | $ | 78 |
| | $ | 84 |
|
(5) Long-Term Debt
|
| | | | | | | |
| (in millions) | December 31, 2018 | | December 31, 2017 |
| | | | |
| CVR Partners: | | | |
| 9.25% Senior Secured Notes due June 2023 (a) | $ | 645 |
| | $ | 645 |
|
| 6.50% Senior Notes due April 2021 | 2 |
| | 2 |
|
| Unamortized discount and debt issuance costs | (18 | ) | | (22 | ) |
| Total CVR Partners Debt | $ | 629 |
| | $ | 625 |
|
| | | | |
| CVR Refining: | | | |
| 6.50% Senior Notes due November 2022 (b) | $ | 500 |
| | $ | 500 |
|
| Capital lease obligations | 44 |
| | 45 |
|
| Unamortized debt issuance cost | (3 | ) | | (4 | ) |
| Current portion of capital lease obligations | (3 | ) | | (2 | ) |
| Total CVR Refining Debt | $ | 538 |
| | $ | 539 |
|
| | | | |
| Total Long-Term Debt | $ | 1,167 |
| | $ | 1,164 |
|
| | | | | |
(a) | This debt was issued at a $16 million discount which is being amortized, as interest expense, over the remaining term of the debt. Debt issuance costs associated with this debt totaled $9 million. |
| |
(b) | Debt issuance costs associated with this debt totaled $9 million. On January 29, 2019, the 2022 Senior Notes were amended such that CVR Refining was replaced by CVR Energy Inc. as the primary guarantor, on a senior unsecured basis, of the 2022 Senior Notes. The CVR Energy Inc. guarantee is full and unconditional and joint and several. See Note 15 ("Guarantor") for further discussion and implications of this change to guarantor. |
Credit Facilities
|
| | | | | | | | | | | | | | | | | |
| (in millions) | Total Capacity | | Amount Borrowed as of December 31, 2018 | | Outstanding Letters of Credit | | Available Capacity as of December 31, 2018 | | Maturity Date |
| | |
| Amended and Restated Asset Based (ABL) Credit Facility (c) | $ | 400 |
| | $ | — |
| | $ | 6 |
| | $ | 394 |
| | November 14, 2022 |
| Asset Based (ABL) Credit Facility (d) | 50 |
| | — |
| | — |
| | 50 |
| | September 30, 2021 |
| |
(c) | Loans under the Amended and Restated ABL Credit Facility initially bear interest at an annual rate equal to (i) 1.50% plus LIBOR or (ii) 0.50% plus a base rate, subject to quarterly excess availability. |
| |
(d) | Loans under the ABL Credit Facility initially bear interest at an annual rate equal to (i) 2.00% plus LIBOR or (ii) 1.00% plus a base rate, subject to a 0.50% step-down based on the previous quarter’s excess availability. |
December 31, 20182021 | 87
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
output associated with the Vessel. Based on terms outlined in the Amended Messer Agreement, the Company expects the lease of the Oxygen Storage Vessel to be classified as a financing lease with an amount of approximately $25 million being capitalized upon lease commencement when the Vessel is placed in service.
Included in other
(5) Other Current Liabilities
Other current liabilities were as follows:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| Accrued Renewable Fuel Standards (“RFS”) obligation | $ | 494 | | | $ | 214 | |
| Deferred revenue | 87 | | | 31 | |
| Personnel accruals | 46 | | | 23 | |
| Accrued taxes other than income taxes | 45 | | | 32 | |
| Accrued interest | 24 | | | 25 | |
| Share-based compensation | 15 | | | 4 | |
| Operating lease liabilities | 13 | | | 14 | |
| | | |
| Accrued derivatives | 2 | | | 17 | |
| | | |
| Other accrued expenses and liabilities | 15 | | | 9 | |
| Total other current liabilities | $ | 741 | | | $ | 369 | |
(6) Long-Term Debt and Finance Lease Obligations | | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| CVR Partners: | | | |
9.25% Senior Secured Notes, due June 2023 (1) | $ | 65 | | | $ | 645 | |
| 6.125% Senior Notes, due June 2028 | 550 | | | — | |
| Unamortized discount and debt issuance costs | (4) | | | (11) | |
| Total CVR Partners debt | $ | 611 | | | $ | 634 | |
| CVR Refining: | | | |
| | | |
Finance lease obligations, net of current portion (2) | 48 | | | 55 | |
| | | |
| Total CVR Refining debt | 48 | | | 55 | |
| CVR Energy: | | | |
| 5.250% Senior Notes, due February 2025 | $ | 600 | | | $ | 600 | |
| 5.750% Senior Notes, due February 2028 | 400 | | | 400 | |
| Unamortized debt issuance cost | (5) | | | (6) | |
| Total CVR Energy debt | 995 | | | 994 | |
| Total long-term debt and finance lease obligations | $ | 1,654 | | | $ | 1,683 | |
Current portion of long-term debt and finance lease obligations (2) (3) | 6 | | | 8 | |
| Total long-term debt and finance lease obligations, including current portion | $ | 1,660 | | | $ | 1,691 | |
(1)The call price of the 9.25% Senior Secured Notes due June 2023 (the “2023 UAN Notes”) decreased to par on June 15, 2021. On June 23, 2021, September 23, 2021, and December 22, 2021, CVR Partners redeemed $550 million, $15 million, and $15 million, respectively, of the 2023 UAN Notes, at par, plus accrued and unpaid interest on the Consolidated Balance Sheets is accrued interest payable totaling approximately $8redeemed portion. The remaining balance of $65 million for both December 31, 2018 and 2017, $5 million relates to the 2022 Notes and $3 million relates to the 2023 Notes.
The Company is in compliance with all covenants of the ABL credit facilities and the senior noteswas outstanding as of December 31, 2018.2021. The $65 million outstanding balance of the 2023 UAN Notes was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.
(2)Current portion of finance lease obligations was approximately $6 million and $6 million as of December 31, 2021 and 2020, respectively.
Amended(3)The $2 million outstanding balance of the 6.50% Notes, due April 2021, was paid in full on April 15, 2021.
CVR Energy, Inc. and Restated Asset Based (ABL)Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Credit Agreements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Total Capacity | | Amount Borrowed as of December 31, 2021 | | Outstanding Letters of Credit | | Available Capacity as of December 31, 2021 | | Maturity Date |
| CVR Partners: | | | | | | | | | |
Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement (1) (2) | $ | 35 | | | $ | — | | | $ | — | | | $ | 35 | | | September 30, 2024 |
| CVR Refining: | | | | | | | | | |
Amended and Restated Asset Based (“Petroleum ABL”) Credit Agreement (3) | $ | 400 | | | $ | — | | | $ | 39 | | | $ | 361 | | | November 14, 2022 |
(1)On September 30, 2021, CVR Partners entered into a senior secured asset based ABL Credit Facility with an aggregate principal amount of up to $35 million with a maturity date of September 30, 2024 (the “Nitrogen Fertilizer ABL”) and terminated its $35 million ABL Credit Agreement, dated as of September 30, 2016, as amended (the “UAN 2016 ABL Credit Agreement”).
(2)Beginning September 30, 2021, loans under the Nitrogen Fertilizer ABL bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.615% plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615% plus a base rate, if our quarterly excess availability is greater than or equal to 75%, (ii) (a) 1.865% plus SOFR or (b) 0.865% plus a base rate, if our quarterly excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115% plus SOFR or (b) 1.115% plus a base rate, otherwise.
(3)Loans under the Petroleum ABL bear interest at an annual rate equal to (i) (a) 1.50% plus LIBOR, to the extent available, or (b) 0.50% plus a base rate, if our quarterly excess availability is greater than 50%, and (ii) (a) 1.75% plus LIBOR, to the extent available, or (b) 0.75% plus a base rate, otherwise.
CVR Partners
2028 UAN Notes - On June 23, 2021, CVR Partners and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, the “Issuers”), completed a private offering of $550 million aggregate principal amount of 6.125% Senior Secured Notes due 2028 (the “2028 UAN Notes”). Interest on the 2028 UAN Notes is payable semi-annually in arrears on June 15 and December 15 each year, commencing on December 15, 2021. The 2028 UAN Notes mature on June 15, 2028, unless earlier redeemed or repurchased by the Issuers. The 2028 UAN Notes are jointly and severally guaranteed on a senior secured basis by all the existing domestic subsidiaries of CVR Partners, excluding Finance Co.
In relation to the issuance of the 2028 UAN Notes, CVR Partners received $547 million of net cash proceeds, net of underwriting fees and other third-party fees and expenses associated with the offering. The debt issuance costs of the 2028 UAN Notes totaled approximately $4 million and are being amortized over the term of the 2028 UAN Notes as interest expense using the effective-interest amortization method.
The Issuers may, at their option, at any time and from time to time prior to June 15, 2024, on any one or more occasions, redeem all or part of the 2028 UAN Notes, at a price equal to 100% of the principal amount plus a “make whole” premium, plus accrued and unpaid interest. On or after June 15, 2024, the Issuers may, on any one or more occasions, redeem all or part of the 2028 UAN Notes at the redemption prices set forth below, expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to the applicable redemption date.
| | | | | | | | |
| 12-month period beginning June 15, | | Percentage |
| 2024 | | 103.063% |
| 2025 | | 101.531% |
| 2026 and thereafter | | 100.000% |
The indenture governing the 2028 UAN Notes contains covenants that are substantially the same as the indenture governing the 2023 UAN Notes. However, the 2028 UAN Notes contain a permitted investment activity carveout that allows for the transfer of certain carbon capture assets to a joint venture for the purpose of monetizing potential tax credits.
2023 UAN Notes - On June 10, 2016, CVR Partners and Finance Co. (together the “2023 Notes Issuers”), certain subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and as collateral trustee, completed a private offering of $645 million aggregate principal amount of 9.25% Senior Secured Notes due 2023 (the “2023 UAN Notes”). The
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2023 UAN Notes mature on June 15, 2023, unless earlier redeemed or repurchased by the issuers. Interest on the 2023 UAN Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The 2023 UAN Notes are guaranteed on a senior secured basis by all of the Nitrogen Fertilizer Partnership’s existing subsidiaries.
On or after June 15, 2021, the 2023 Notes Issuers may redeem all or part of the 2023 UAN Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest to the applicable redemption date. The 2023 UAN Notes contain customary covenants for a financing of this type that, among other things, restrict CVR Partners’ ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Nitrogen Fertilizer Partnership’s units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from CVR Partners’ restricted subsidiaries to CVR Partners; (vii) consolidate, merge or transfer all or substantially all of CVR Partners’ assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which would result in or permit the trustee or the holders of at least 25% of the 2023 UAN Notes to cause the acceleration of the 2023 UAN Notes, in addition to the pursuit of other available remedies.
On June 23, 2021, CVR Partners redeemed $550 million aggregate principal amount of the outstanding 2023 UAN Notes at par and settled accrued interest of approximately $1 million through the date of redemption. As a result of the redemption, CVR Partners recognized in Interest expense, net an $8 million loss on extinguishment of debt in the second quarter of 2021, which includes the write-off of unamortized deferred financing costs and discount of $3 million and $5 million, respectively.
On September 23, 2021 and December 22, 2021, CVR Partners redeemed $15 million and $15 million respectively, in aggregate principal amount of the outstanding 2023 UAN Notes at par and settled accrued interest of less than $1 million through the date of each redemption. As a result of these redemptions and for the year ended December 31, 2021, CVR Partners recognized in Interest expense, net a loss on extinguishment of debt of less than $1 million in 2021, which includes the write-off of unamortized deferred financing costs and discount.
On February 22, 2022, CVR Partners redeemed all of the outstanding 2023 UAN Notes at par and settled accrued interest of approximately $1 million through the date of redemption. As a result of this transaction, CVR Partners will recognize a loss on extinguishment of debt of $1 million in the first quarter of 2022, which includes the write-off of unamortized deferred financing costs and discount of less than $1 million each.
Nitrogen Fertilizer ABL- On September 30, 2021, CVR Partners, LP and its subsidiaries, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Finance Co. and CVR Nitrogen GP, LLC, entered into the Nitrogen Fertilizer ABL with Wells Fargo Bank National Association, a national banking association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The Nitrogen Fertilizer ABL has an aggregate principal amount of availability of up to $35 million with an incremental facility, which permits an increase in borrowings of up to $15 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for general corporate purposes of CVR Partners and its subsidiaries. The Nitrogen Fertilizer ABL provides for loans and letters of credit, subject to meeting certain borrowing base conditions, with sub-limits of $4 million for swingline loans and $10 million for letters of credit. The Nitrogen Fertilizer ABL is scheduled to mature on September 30, 2024.
Loans under the Nitrogen Fertilizer ABL initially bear interest at an annual rate equal to, at the option of the borrowers, (i) 1.615% plus SOFR or (ii) 0.615% plus a base rate. Based on the previous quarter’s excess availability, such annual rate could increase to, at the option of the borrowers, (i) 2.115% plus SOFR or (ii) 1.115% plus a base rate. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees.
The Nitrogen Fertilizer ABL contains customary covenants for a financing of this type and requires CVR Partners in certain circumstances to comply with a minimum fixed charge coverage ratio test and contains other restrictive covenants that limit the ability of CVR Partners and its subsidiaries ability to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue certain equity interests, create subsidiaries and unrestricted subsidiaries, and create certain restrictions on the ability to make distributions, loans, and asset transfers among CVR Partners or its subsidiaries.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the Nitrogen Fertilizer ABL, CVR Partners incurred lender and other third-party costs of $1 million, which have been deferred in Prepaid expenses and other current assets and Other long-term assets and are being amortized as interest expense over the term of the Nitrogen Fertilizer ABL using the straight-line amortization method.
CVR Refining
Petroleum ABL - On November 14, 2017, CRLLC,CVR Services, CVR Refining, its wholly-owned subsidiary, CVR Refining, LLC (“Refining LLC”) and each of the operating subsidiaries of Refining LLC (collectively, the “Credit Parties”) entered into Amendment No. 1 to the Amended and Restated ABL Credit Agreement (the “Amendment”, and collectively, the “Petroleum ABL”) with a group of lenders and Wells Fargo, Bank, National Association (“Wells Fargo”), as administrative agent and collateral agent. The Amended and RestatedPetroleum ABL Credit Facility is a $400 million asset-based revolving credit facility, with sub-limits for letters of credit and swingline loans of $60 million and $40 million, respectively. The Amended and RestatedPetroleum ABL Credit Facility also includes a $200 million uncommitted incremental facility.
Asset Based (ABL) Credit FacilityCVR Energy
2025 Notes and 2028 Notes - On September 30, 2016,January 27, 2020, CVR Partners entered intoEnergy completed a senior secured asset based revolving credit facility (the “ABL Credit Facility”) with a groupprivate offering of lenders and UBS AG (“UBS”), as administrative agent and collateral agent. The ABL Credit Facility has an$600 million aggregate principal amount of availability5.25% Senior Unsecured Notes due 2025 (the “2025 Notes”) and $400 million aggregate principal amount of up to $50 million5.75% Senior Unsecured Notes due 2028 (the “2028 Notes” and, collectively with an incremental facility, which permits an increasethe 2025 Notes, the “Notes”). Interest on the Notes is payable semi-annually in borrowingsarrears on February 15 and August 15 each year, commencing on August 15, 2020. The 2025 Notes mature on February 15, 2025, unless earlier redeemed or repurchased by the issuers. The 2028 Notes mature on February 15, 2028, unless earlier redeemed or repurchased by the issuers. The Notes are jointly and severally guaranteed on a senior unsecured basis by the wholly-owned subsidiaries of up to $25 million inCVR Energy with the aggregate subject to additional lender commitmentsexception of CVR Partners and its subsidiaries and certain immaterial wholly-owned subsidiaries of CVR Energy.
In relation to the issuance of the Notes, the Company received $993 million of net cash proceeds, net of underwriting fees and other conditions.third-party fees and expenses associated with the offering. The ABL Credit Facility is scheduled to mature on September 30, 2021.debt issuance costs of the Notes totaled approximately $7 million and are being amortized over the terms of the respective notes as interest expense using the effective-interest amortization method.
Credit Agreement
On January 29, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with Jefferies Finance LLC to provide a term loan credit facility with a maturity date of March 10, 2019. The borrowings under the Credit Agreement of $105 million were used to fund a portionor after February 15, 2022 and February 15, 2023, we may on any one or more occasions, redeem all or part of the CVRR Unit Purchase. All amounts were repaid on February 11, 2019.
Capital Lease Obligations
CVR Refining maintains three significant leases, accounted for2025 Notes and 2028 Notes, respectively, at the redemption prices set forth below expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to the applicable redemption date.
| | | | | | | | | | | | | | | | | | | | |
| 2025 Notes | | 2028 Notes |
| 12-month period beginning February 15, | | Percentage | | 12-month period beginning February 15, | | Percentage |
| 2022 | | 102.625% | | 2023 | | 102.875% |
| 2023 | | 101.313% | | 2024 | | 101.917% |
| 2024 and thereafter | | 100.000% | | 2025 | | 100.958% |
| | | | 2026 and thereafter | | 100.000% |
The indenture governing the Notes imposes covenants that will, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional indebtedness or issue certain disqualified equity; (ii) create liens on certain assets to secure debt; (iii) pay dividends or make other equity distributions; (iv) purchase or redeem capital lease,stock; (v) make certain investments; (vi) sell assets; (vii) agree to certain restrictions on the ability of restricted subsidiaries to make distributions, loans, or other asset transfers to us; (viii) consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; (ix) engage in transactions with affiliates; and (x) designate our restricted subsidiaries as unrestricted subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which include a pipeline lease, a storagewould result in or permit the trustee or the holders of at least 25% of the 2025 Notes and terminal equipment lease2028 Notes to cause, amongst other available remedies, the acceleration of the respective notes.
Covenant Compliance
The Company is in compliance with all covenants of the Nitrogen Fertilizer ABL, the Petroleum ABL, and a bundled truck lease. These leases range in expiry from 44 months to 130 months. Asthe senior notes as of December 31, 2018, the outstanding obligation associated with these arrangements totaled approximately $44 million.2021.
Future payments required under these capital lease at December 31, 2018 are as follows:2021 | 91
|
| | | |
| Year Ending December 31, | Capital Lease |
| (in millions) | |
| 2019 - 2023 (annually $7 million) | $ | 35 |
|
| Thereafter | 37 |
|
| Total future payments | 72 |
|
| Less: amount representing interest | 28 |
|
| Present value of future minimum payments | 44 |
|
| Less: current portion | 3 |
|
| Long-term portion | $ | 41 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) Revenue
(6) Revenue
On January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) using the modified retrospective method applied to contracts which were not completed as of January 1, 2018. The standard was applied prospectively and the comparative information for 2017 has not been restated and continues to be reported under the accounting standards in effect for the prior period. The Company did not identify any material differences in its existing revenue recognition methods that required modification under the new standard and, as such, a cumulative effect adjustment of applying the standard using the modified retrospective method was not recorded.
The following tables present the Company’s revenue disaggregated by major product. The following tablesproduct, which include a reconciliation of the disaggregated revenue by product and other revenue components for the Company’s reportable segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in millions) | Petroleum | | Nitrogen Fertilizer | | Other / Eliminations | | Consolidated |
| Gasoline | $ | 3,679 | | | $ | — | | | $ | — | | | $ | 3,679 | |
Distillates (1) | 2,809 | | | — | | | — | | | 2,809 | |
| Ammonia | — | | | 146 | | | — | | | 146 | |
| UAN | — | | | 316 | | | — | | | 316 | |
| Other urea products | — | | | 29 | | | — | | | 29 | |
| | | | | | | |
| Freight revenue | 21 | | | 31 | | | — | | | 52 | |
Other (2) | 163 | | | 11 | | | (12) | | | 162 | |
| Revenue from product sales | 6,672 | | | 533 | | | (12) | | | 7,193 | |
| | | | | | | |
| Crude oil sales | 47 | | | — | | | — | | | 47 | |
Other revenue (2) | 2 | | | — | | | — | | | 2 | |
| Total revenue | $ | 6,721 | | | $ | 533 | | | $ | (12) | | | $ | 7,242 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| (in millions) | Petroleum | | Nitrogen Fertilizer | | Other / Eliminations | | Consolidated |
| Gasoline | $ | 1,882 | | | $ | — | | | $ | — | | | $ | 1,882 | |
Distillates (1) | 1,543 | | | — | | | — | | | 1,543 | |
| Ammonia | — | | | 94 | | | — | | | 94 | |
| UAN | — | | | 198 | | | — | | | 198 | |
| Other urea products | — | | | 15 | | | — | | | 15 | |
| Freight revenue | 18 | | | 33 | | | — | | | 51 | |
Other (2) | 79 | | | 10 | | | (6) | | | 83 | |
| Revenue from product sales | 3,522 | | | 350 | | | (6) | | | 3,866 | |
| | | | | | | |
| Crude oil sales | 63 | | | — | | | — | | | 63 | |
Other revenue (2) | 1 | | | — | | | — | | | 1 | |
| Total revenue | $ | 3,586 | | | $ | 350 | | | $ | (6) | | | $ | 3,930 | |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| (in millions) | Petroleum | | Nitrogen Fertilizer | | Other / Eliminations | | Consolidated |
| Gasoline | $ | 3,383 |
| | $ | — |
| | $ | — |
| | $ | 3,383 |
|
| Distillates (a) | 3,067 |
| | — |
| | — |
| | 3,067 |
|
| Ammonia | — |
| | 66 |
| | — |
| | 66 |
|
| UAN | — |
| | 222 |
| | — |
| | 222 |
|
| Other urea products | — |
| | 21 |
| | — |
| | 21 |
|
| Freight revenue | 23 |
| | 34 |
| | — |
| | 57 |
|
| Other (b) | 206 |
| | 8 |
| | (7 | ) | | 207 |
|
| Revenue from product sales | 6,679 |
| | 351 |
| | (7 | ) | | 7,023 |
|
| | | | | | | | |
| Crude oil sales | 96 |
| | — |
| | — |
| | 96 |
|
| Other revenue (b) | 5 |
| | — |
| | — |
| | 5 |
|
| Total revenue | $ | 6,780 |
| | $ | 351 |
| | $ | (7 | ) | | $ | 7,124 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| (in millions) | Petroleum | | Nitrogen Fertilizer | | Other / Eliminations | | Consolidated |
| Gasoline | $ | 3,050 | | | $ | — | | | $ | — | | | $ | 3,050 | |
Distillates (1) | 2,705 | | | — | | | — | | | 2,705 | |
| Ammonia | — | | | 94 | | | — | | | 94 | |
| UAN | — | | | 251 | | | — | | | 251 | |
| Other urea products | — | | | 18 | | | — | | | 18 | |
| Freight revenue | 23 | | | 33 | | | — | | | 56 | |
Other (2) | 129 | | | 8 | | | (8) | | | 129 | |
| Revenue from product sales | 5,907 | | | 404 | | | (8) | | | 6,303 | |
| | | | | | | |
| Crude oil sales | 58 | | | — | | | — | | | 58 | |
Other revenue (2) | 3 | | | — | | | — | | | 3 | |
| Total revenue | $ | 5,968 | | | $ | 404 | | | $ | (8) | | | $ | 6,364 | |
| |
(a) | Distillates consist primarily of diesel fuel, kerosene and jet fuel. |
| |
(b) | Other revenue consists primarily of feedstock and asphalt sales and Cushing, OK storage tank lease revenue. See Note 2 (“Summary of Significant Accounting Policies”) for further discussion. |
(1)Distillates consist primarily of diesel fuel, kerosene, and jet fuel.
(2)Other revenue consists primarily of feedstock and asphalt sales and Cushing, OK storage tank lease revenue. See Note 2 (“Summary of Significant Accounting Policies”) for further discussion on the Cushing, OK storage tanks.
Petroleum Segment
The Petroleum Segment’s revenue from product sales is recorded upon delivery of the products to customers, which is the point at which title is transferred and the customer has assumed the risk of loss. This generally takes place as product passes into the pipeline, as a product transfer order occurs within a pipeline system, or as product enters equipment or locations supplied or designated by the customer. The sales tax practical expedient is being applied, whereby qualifyingQualifying excise and other taxes collected from the Petroleum Segment’s customers and remitted to governmental authorities are not included in reported Petroleum Segment revenues.
Many of the Petroleum Segment’s contracts have index-based pricing which is considered variable consideration that should be estimated in determining the transaction price. The Petroleum Segment determined that it does not need to estimate the variable consideration because the uncertainty related to the consideration is resolved on the pricing date or the date when the product is delivered.
The Petroleum Segment may incur broker commissions or transportation costs prior to product transfer on some of its sales. The Petroleum Segment has elected to apply the practical expedient allowing it to expense theexpenses these broker costs, since the contract durations are less than a year in length.year. Transportation costs are accounted for as fulfillment costs and are expensed as incurred since they do not meet the requirement for capitalization.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Petroleum Segment’s contracts with its customers state the terms of the sale, including the description, quantity, and price of each product sold. Depending on the product sold, payment from customers is generally due in full within 2 to 30 days of product delivery or invoice date. The Petroleum Segment’s contracts with customers commonly include a provision which states that the petroleum segment will accept customer returns of off-spec product, refund the customer (or provide on-spec product), and pay for damages to any customer equipment which resulted from the off-spec product. Typically, if the customer is not satisfied with the product, the price is adjusted downward instead of the product being returned or exchanged. Product returns or refunds are rare and will be accounted for as they occur. The Petroleum Segment generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the agreed upon specification. The Petroleum Segment has determined that product returns or refunds are very rare and will account for them as they occur.
Freight revenue recognized by the petroleum segmentPetroleum Segment is primarily tariff and line loss charges that are re-billedrebilled to customers to reimburse the Petroleum Segment for expenses reflectedincurred from a pipeline operator. An offsetting expense is included in costCost of materials and other for the transportation and distribution of products to the customer.other.
Nitrogen FertilizerSegment
The Nitrogen Fertilizer Segment sells its products on a wholesale basis under a contract or by purchase order. ContractsThe Nitrogen Fertilizer Segment’s contracts with customers including purchase orders, generally contain fixed pricing and most have terms of less than one year. The Nitrogen Fertilizer Segment recognizes revenue at the point in time at which the customer obtains control of the product, which is generally upon delivery and acceptance by the customer. The customer acceptance point is stated in the contract and may be
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
at one of the Nitrogen Fertilizer Segment’s manufacturing facilities, orat one of the Nitrogen Fertilizer Segment’s off-site loading facilities, or at the customer’s designated facility. Freight revenue recognized by the Nitrogen Fertilizer Segment represents the pass-through finished goods delivery costs incurred prior to customer acceptance and is reimbursed by customers. An offsetting expense for freight is included in costCost of materials and other. Qualifying excise and other taxes collected from the Nitrogen Fertilizer Segment’s customers and remitted to governmental authorities are not included in reported Nitrogen Fertilizer Segment revenues.
Depending on the product sold and the type of contract, payments from customers are generally either due prior to delivery or within 15 to 30 days of product delivery.
The Nitrogen Fertilizer Segment generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the agreed upon specifications. Product returns are rare, and as such, nothe Nitrogen Fertilizer Segment does not record a specific warranty reserve is recorded andor consider activities related to such warranty, if any, are not considered to be a separate performance obligation.
The Nitrogen Fertilizer Segment has an immaterial amount of variable consideration for contracts with an original duration of less than a year. An insignificantA small portion of the Nitrogen Fertilizer Segment’s revenue includes contracts extending beyond one year, some of which contain variable pricing in which the majority of the variability is attributed to the market-based pricing. The Nitrogen Fertilizer Segment’s contracts do not contain a significant financing component.
The Nitrogen Fertilizer Segment has an immaterial amount of fee-based revenue, included in other revenue in the table above, that is recognized based on the net amount of the proceeds received, consistent with prior accounting practice.
Remaining performance obligationsPerformance Obligations
As of December 31, 2018,2021, the Nitrogen Fertilizer Segment had approximately $11$10 million of remaining performance obligations for contracts with an original expected duration of more than one year. Approximately 45%The Nitrogen Fertilizer Segment expects to recognize approximately $6 million of these performance obligations are expected to be recognized as revenue by the end of 2019 with2022, an additional 27%$4 million by 20202023, and the remaining balance thereafter.
Contract balancesBalances
DeferredThe Nitrogen Fertilizer Segment’s deferred revenue is a contract liability associated with the Nitrogen Fertilizer Segment that primarily relates to nitrogen fertilizer sales contracts requiring customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. Deferred revenue is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional prior to transferring product to the customer. An associated receivable is recorded for uncollected prepaid contract amounts. Contracts requiring prepayment are generally short-term in nature and, as discussed above, revenue is recognized at the point in time in which the customer obtains control of the product.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the Nitrogen Fertilizer Segment’s deferred revenue activity during the year ended December 31, 20182021 is presented below:
| | | | | |
| (in millions) | |
| Balance at December 31, 2020 | $ | 31 | |
| Add: | |
New prepay contracts entered into during the period (1) | 147 | |
| Less: | |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (30) | |
| Revenue recognized related to contracts entered into during the period | (60) | |
| Other changes | (1) | |
| Balance at December 31, 2021 | $ | 87 | |
(1)Includes $94 million where the payment associated with prepaid contracts was collected.
|
| | | | |
| (in millions) | | Year Ended December 31, 2018 |
| Balance at January 1, 2018 | | $ | 34 |
|
| Add: | | |
| New prepay contracts entered into during the period, net of adjustments | | 92 |
|
| Less: | | |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | | 34 |
|
| Revenue recognized related to contracts entered into during the period | | 23 |
|
| Balance at December 31, 2018 | | $ | 69 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Major Customers
Petroleum Segment -The Petroleum Segment hashad one customer who comprised 15%, 19%,16% of petroleum net sales for the year ended December 31, 2021 and 15%two customers who comprised 26% and 25% of petroleum net sales for the years ended December 31, 2018, 2017,2020 and 2016,2019, respectively.
Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment hashad one customer who comprised 13% for the year ended December 31, 2021 and two customers who comprised 20%, 16%,26% and 20%28% of nitrogen fertilizer net sales for the years ended December 31, 2018, 2017,2020 and 2016,2019, respectively. One of these customers comprised 14%, 11%,
(8) Derivative Financial Instruments, Investments and 10% of net sales for the same periods, respectively.Fair Value Measurements
(7) Derivative Financial Instruments
Our segments are subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations, and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Petroleum Segment from time to time enters into various commodity derivative transactions. On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. The contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing.
The Petroleum Segment holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges under GAAP. There are no premiums paid or received at inception of the derivative contracts andor upon settlement. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. As of December 31, 2018,2021, the Petroleum Segment had open fixed-price commitments to purchase 27a net 2 million 2019 year RINs at $4 million and 8 million 2018 year RINs for $3 million.RINs.
Commodity derivatives include commodity swaps and forward purchase and sale commitments. There were no outstanding commodity swap positions as of December 31, 2018.2021 compared to 7 million barrels in outstanding commodity swap positions as of December 31, 2020. As of December 31, 2021 and 2020, there were approximately 1 million and 4 million barrels in forward purchase commitments, respectively, and 1 million and 2 million barrels in forward sale commitments, respectively.
The following outlines the gains (losses) recognized on the Company’s derivative activities, all of which are recorded in Cost of Materialsmaterials and Otherother on the Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Forward purchases and sales contracts, net | $ | 25 | | | $ | 53 | | | $ | 20 | |
| Commodity swap instruments | (68) | | | (8) | | | — | |
| Futures contracts | (1) | | | 10 | | | (1) | |
| Total (loss) gain on derivatives, net | $ | (44) | | | $ | 55 | | | $ | 19 | |
|
| | | | | | | | | | | |
| Gain (Loss) on Derivatives by Type | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Forward purchases | $ | 103 |
| | $ | (26 | ) | | $ | — |
|
| Swaps | 44 |
| | (43 | ) | | (19 | ) |
| Futures | (1 | ) | | (1 | ) | | — |
|
| Total gain (loss) on derivatives, net | $ | 146 |
| | $ | (70 | ) | | $ | (19 | ) |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following outlines the open positions (in millions of barrels) held by the Petroleum Segment as of December 31, 2018 and 2017:
|
| | | | | |
| Open Commodity Derivative Instruments |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| Commodity Swap Instruments: | | | |
| 2-1-1 Crack spreads | — |
| | 7 |
|
| Distillate Crack spreads | — |
| | 4 |
|
| Gasoline Crack spreads | — |
| | 4 |
|
| Purchase and Sale Commitments - Futures Contracts: | | | |
| Canadian crude oil | 2 |
| | 6 |
|
Offsetting Assets and Liabilities
The Company elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty. These amounts are recognized as current assets and current liabilities within the prepaidPrepaid expenses and other
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
current assets and accrued expenses and otherOther current liabilities financial statement line items, respectively, in the Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Assets | | Derivative Liabilities |
| December 31, | | December 31, |
| (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Commodity derivatives | $ | 5 | | | $ | 1 | | | $ | (7) | | | $ | (5) | |
| | | | | | | |
| Less: Counterparty netting | (5) | | | (1) | | | 5 | | | 1 | |
| Total net fair value of derivatives | $ | — | | | $ | — | | | $ | (2) | | | $ | (4) | |
|
| | | | | | | | | | | | | | | |
| | Derivative Assets | | Derivative Liabilities |
| | December 31, | | December 31, |
| (in millions) | 2018 | | 2017 | | 2018 | | 2017 |
| Commodity Derivatives | $ | 8 |
| | $ | 7 |
| | $ | 1 |
| | $ | 71 |
|
| Less: Counterparty Netting | (1 | ) | | (7 | ) | | (1 | ) | | (7 | ) |
| Total Net Fair Value of Derivatives | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | 64 |
|
Investments
Investments consist of equity securities, which are reported at fair value in our Consolidated Balance Sheets. These investments are considered trading securities. Investment income on marketable securities consists of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Dividend income | $ | — | | | $ | 7 | | | $ | — | |
| Gain on marketable securities | 81 | | | 34 | | | — | |
| Investment income on marketable securities | $ | 81 | | | $ | 41 | | | $ | — | |
On June 10, 2021, the Company distributed its investment of 10,539,880 shares of common stock of Delek US Holdings, Inc. (“Delek”) in the form of a special dividend to its stockholders (the “Stock Distribution”). Following the Stock Distribution, the Company continued to hold a nominal investment in other marketable securities of Delek as of December 31, 2021. See further discussion of the distribution in Note 14 (“Related Party Transactions”).
Fair Value Measurements
In accordance with FASB ASC Topic 820 — Fair Value Measurements and Disclosures (“ASCTopic 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets or liabilities, such as a business.
ASCTopic 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•Level 1 — Quoted prices in active markets for identical assets or liabilities
•Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
•Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)
December 31, 20182021 | 9296
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table setstables set forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by input level, as of December 31, 20182021 and 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Location and Description | | | | | | | |
| | | | | | | |
| | | | | | | |
| Other current assets (commodity derivatives) | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| Total Assets | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | |
| Other current liabilities (commodity derivatives) | $ | — | | | $ | (2) | | | $ | — | | | $ | (2) | |
| | | | | | | |
| Other current liabilities (RFS obligation) | — | | | (494) | | | — | | | (494) | |
| Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,620) | | | — | | | (1,620) | |
| Total Liabilities | $ | — | | | $ | (2,116) | | | $ | — | | | $ | (2,116) | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Location and Description | | | | | | | |
| Cash equivalents | $ | 50 |
| | $ | — |
| | $ | — |
| | $ | 50 |
|
| Other current assets (commodity derivatives) | — |
| | 7 |
| | — |
| | 7 |
|
| Total Assets | $ | 50 |
| | $ | 7 |
| | $ | — |
| | $ | 57 |
|
| Other current liabilities (Renewable Fuel Standard “RFS” obligation) | — |
| | (2 | ) | | — |
| | (2 | ) |
| Long-term debt | — |
| | (1,163 | ) | | — |
| | (1,163 | ) |
| Total Liabilities | $ | — |
| | $ | (1,165 | ) | | $ | — |
| | $ | (1,165 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Location and Description | | | | | | | |
| | | | | | | |
| Prepaid expenses and other current assets (investments) | $ | 173 | | | $ | — | | | $ | — | | | $ | 173 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total Assets | $ | 173 | | | $ | — | | | $ | — | | | $ | 173 | |
| Note payable and finance lease obligations (current portion of long-term debt) | $ | — | | | $ | (2) | | | $ | — | | | $ | (2) | |
| Other current liabilities (commodity derivatives) | — | | | (17) | | | — | | | (17) | |
| | | | | | | |
| Other current liabilities (RFS obligation) | — | | | (214) | | | — | | | (214) | |
| Long-term debt and finance lease obligations, net of current portion (long-term debt) | — | | | (1,604) | | | — | | | (1,604) | |
| Total Liabilities | $ | — | | | $ | (1,837) | | | $ | — | | | $ | (1,837) | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| (In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Location and Description | | | | | | | |
| Cash equivalents | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 15 |
|
| Total Assets | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 15 |
|
| Other current liabilities (commodity derivatives) | $ | — |
| | $ | (64 | ) | | $ | — |
| | $ | (64 | ) |
| Other current liabilities (RFS obligation) | — |
| | (1 | ) | | — |
| | (1 | ) |
| Long-term debt | — |
| | (1,209 | ) | | — |
| | (1,209 | ) |
| Total Liabilities | $ | — |
| | $ | (1,274 | ) | | $ | — |
| | $ | (1,274 | ) |
As of December 31, 20182021 and 2017,2020, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s cash equivalents,investments, derivative instruments, long-term debt, and the RFS obligation. The estimated fair value of cash equivalents, included amounts invested in short-term money market funds, and restricted cash approximate their carrying amounts. The Petroleum Segment’s commodity derivative contracts and RFS obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. The Company had no transfers of assets or liabilities between any of the above levels during the year ended December 31, 2018.2021.
(8)(9) Share-Based Compensation
Overview
CVR Energy, CVR Refining, and CVR Partners all have a Long-Term Incentive Plans (collectively, the “LTIPs”) whichthat permit the granting of options, stock and unit appreciation rights, (“SARs”), restricted shares, restricted stock units, phantom units, unit awards, substitute awards, other unit-based awards, cash awards, dividend and distribution equivalent rights, share awards, and performance awards (including performance share units, performance units, and performance-based restricted stock). Individuals who are eligible to receive awards and grants under or in connection with the LTIPLTIPs include the Company’s and employees, officers, consultants, advisors and directors of the Company, CVR Refining, and CVR Partners.
The Company had 6.8 million shares or units, as applicable, available for future grants under our plans at December 31, 2018 | 93
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Incentive and Phantom Unit Awards
Incentive and phantom unit awards have been granted to officers, employees, consultants and directors (collectively, the “Share-Based Awards”) under the LTIPs.. As a result, Share-Based Awards that reflect the value and dividenddividends or distributions of CVR Energy CVR Refining or CVR Partners, as applicable, have been granted and remain outstanding as of December 31, 2018.2021. Each Share-Based Award and the related dividend or distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
average fair market value of one1 share or unit, as applicable, in accordance with the award agreement, plus (ii) the per share or unit cash value of all dividends or distributions declared and paid, as applicable, from the grant date to and includingthrough the vesting date. The Share-Based Awards are generally graded-vesting awards, which are expected to vest over three years with one-third of the award vesting each year the grantee remains employed by the Company or its subsidiaries. Compensation expense is recognized on ratably, based on service provided to the Company and its subsidiaries, with the amount recognized fluctuating as a result of the Share-Based Awards being re-measured to fair value at the end of each reporting period due to their liability-award classification.
Phantom and Incentive Unit Awards - A summary of activity for the Company’s Share-Based Awards for the yearsyear ended December 31, 2018, 2017 and 20162021 is presented below: | | | | | | | | | | | | | | | | | | |
| Shares or Units (1) | | Weighted-Average Grant-Date Fair Value (per share or unit) | | Aggregate Intrinsic Value (in millions) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Non-vested at December 31, 2020 | 2,454,641 | | | $ | 19.01 | | | $ | 37 | | |
| Granted | 950,744 | | | 19.46 | | | | |
| Vested | (857,901) | | | 21.14 | | | | |
| Forfeited | (254,379) | | | 19.66 | | | | |
| Non-vested at December 31, 2021 | 2,293,105 | | | $ | 18.23 | | | $ | 62 | | |
(1)As of December 31, 2021, there are no outstanding awards under the LTIPs, and the only outstanding and unvested awards are issued in connection with and not under the LTIPs. |
| | | | | | | | | | | |
| | | Shares or Units | | Weighted-
Average
Grant-Date
Fair Value (Per Share or Unit) | | Aggregate
Intrinsic
Value (In Millions) |
| Non-vested at December 31, 2016 | | 2,664,438 |
| | $ | 10.76 |
| | $ | 24 |
|
| Granted | | 1,713,192 |
| | 8.52 |
| | |
| Vested | | (1,062,382 | ) | | 11.62 |
| | |
| Forfeited | | (361,301 | ) | | 12.29 |
| | |
| Non-vested at December 31, 2017 | | 2,953,947 |
| | $ | 8.97 |
| | $ | 33 |
|
| Granted | | 1,236,322 |
| | 16.11 |
| | |
| Vested | | (1,140,423 | ) | | 9.74 |
| | |
| Forfeited | | (617,773 | ) | | 9.39 |
| | |
| Non-vested December 31, 2018 | | 2,432,073 |
| | $ | 12.13 |
| | $ | 24 |
|
Performance Unit Awards
Pursuant to an employment agreement with the Company’s current chief executive officer, the Company entered into two2 performance award agreements on November 1, 2017. In connection with the performance period of January 1, 2018 to December 31, 2018, a performance award was granted with a target value of $1.5 million that is payable in February 2019 (the “2018 CEO Performance Award”). The payout of $1.9 million, paid in February 2019, under the 2018 CEO Performance Award iswas based on the Company’s performance against certain safety, operating, and financial measures. Additionally, the Company entered into a performance award agreement (the “CEO Performance Award”). The CEO Performance Award represents the right to receive upon vesting, a cash payment equal to $10 million if the average closing price of the Company’s common stock over the 30-trading day period from January 4, 2022 to February 15, 2022 is equal to or greater than $60 per share. An accrualEffective as of approximately $2 million has been recognized at December 31, 2018 associated with the 2018 CEO Performance Award.
In December 2016,22, 2021, the Company entered into a performance unit award agreement withan amendment to the Company’s former chief executive officer related toCEO Performance Award, which extended the end of the performance period from January 1, 2017thereunder to December 31, 2017 (the “Former CEO Performance Award ”). As2024, and changed the 30 day trading period on which the average closing price of and for the year ended December 31, 2018, there was no outstanding liability or expense recognized relatedCompany’s common stock is based to the Former CEO Performance Award.January 6, 2025 through February 20, 2025.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Compensation Expense
A summary of total share based compensation expense and unrecognized compensation expense related to the Share-Based Awards and the Company’s performance awards, the amounts allocated to each of the Company’s segments, and the amounts that were not allocated to segments during the years ended December 31, 2018, 20172021, 2020, and 20162019 is presented below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | Unrecognized Expense |
| For the year ended December 31, | | At December 31, 2021 |
| (in millions) | 2021 | | 2020 | | 2019 | | Amount | | Weighted-Average Remaining Years |
| Share based awards: | | | | | | | | | |
| Incentive Units | $ | 22 | | | $ | 3 | | | $ | 12 | | | $ | 27 | | | 2.4 |
| Phantom Units | 27 | | | 1 | | | 5 | | | 19 | | | 2.0 |
| | | | | | | | | |
| Performance awards: | | | | | | | | | |
CEO Performance Award (1) | (3) | | | — | | | — | | | 10 | | | 3.0 |
| | | | | | | | | |
| | | | | | | | | |
| Total expense | $ | 46 | | | $ | 4 | | | $ | 17 | | | $ | 56 | | | |
(1)All expenses, recognized and unrecognized, related to the CEO Performance Award are contingent upon whether the performance parameters are probable of being met. If the performance parameters are not met, no expense will be recognized.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
| | | | | | | | | | | | | | | | |
| | Expenses | | Unrecognized Expense |
| | For the year ended December 31, | | At December 31, 2018 |
| (in millions) | 2018 | | 2017 | | 2016 | | Amount | Weighted Average Remaining Years |
| Share based awards | | | | | | | | |
| Incentive Units | $ | 4 |
| | $ | 7 |
| | $ | 2 |
| | $ | 15 |
| 1.7 |
| Phantom Units | 8 |
| | 8 |
| | 3 |
| | 4 |
| 1.6 |
| | | | | | | | | |
| Performance awards | | | | | | | | |
| CEO Performance Award | 2 |
| | — |
| | — |
| | 8 |
| 3.0 |
| 2018 CEO Performance Award | 2 |
| | — |
| | — |
| | — |
| 0.0 |
| Former CEO Performance Award | — |
| | 4 |
| | 4 |
| | — |
| 0.0 |
| Total expense | $ | 16 |
| | $ | 19 |
| | $ | 9 |
| | $ | 27 |
|
|
The total tax benefit recognized during the years ended December 31, 2021, 2020, and 2019 related to compensation expense was $12 million, $1 million and $4 million respectively. As of December 31, 2021 and 2020, the Company had a liability of $23 million and $5 million, respectively, for cash settled non-vested Share-Based Awards and associated dividend and distribution equivalent rights. For the years ended December 31, 2021, 2020, and 2019, the Company paid cash of $30 million, $8 million, and $23 million, respectively, to settle liability-classified awards upon vesting.
Other Benefit Plans
CVRThe Company sponsors and administers two2 defined-contribution 401(k) plans, the CVR Energy 401(k) Plan and the CVR Energy 401(k) Plan for Represented Employees (the “Plans”), in which CVRthe Company’s employees may participate. CVR’sParticipants in the Plans may elect to contribute a designated percentage of their eligible compensation in accordance with the Plans, subject to statutory limits. The Company provides a matching contribution of 100% of the first 6% of eligible compensation contributed by participants. Participants in both Plans are immediately vested in their individual contributions. The Plans provide for a three-year vesting schedule for the Company’s matching contributions and contain a provision to count service with predecessor organizations. The Company did not have contributions under the Plans for the year ended December 31, 2021, as the Company matching contributions for the Plans were suspended effective January 1, 2021, and had approximately $9 million, $9$10 million and $8$9 million for the years ended December 31, 2018, 20172020 and 2016,2019, respectively. The Company matching contributions for the Plans resumed effective January 1, 2022.
(9)(10) Income Taxes
Tax Allocation Agreement
In August 2018, CVR Energy completed an exchange offer whereby public unitholders tendered a total of 21,625,106 CVR Refining common units in exchange for a total of 13,699,549 shares of CVR Energy common stock (the “CVRR Unit Exchange”). Prior to the CVRR Unit Exchange, CVR Energy was a member of the consolidated federal tax group of AEP, an affiliate of IEP, and party to a tax allocation agreement with AEP (the “Tax Allocation Agreement”). The Tax Allocation Agreement providesprovided that AEP willwould pay all consolidated federal income taxes on behalf of the consolidated tax group. As a result, CVR Energy iswas required to make payments to AEP in an amount equal to the tax liability, if any, that it would have had paid if it were to file as a consolidated group separate and apart from AEP.
Following the CVRR Unit Exchange, IEP and affiliates’ ownership of CVR Energy was reduced below 80% and, since that time, CVR Energy is no longer eligible to file as a member of the AEP consolidated federal income tax group. Beginning with the tax period after the exchange,On August 2, 2018, CVR Energy became the parent of a new consolidated group for U.S. federal income tax purposes, filing and will file and paypaying its federal income tax obligations directly to the IRS. Pursuant to the terms of the Tax Allocation Agreement, however, CVR Energy may be required to make payments in respect of taxes owed by AEP for periods prior to the exchange. Similar principles may apply for state or local income tax purposes where CVR Energy filed combined, consolidated foror unitary tax returns with AEP. AEP’s federal income tax return for the periods ended December 31, 2017 and 2018 are currently under examination by the IRS.
As of December 31, 20182021 and 2017,2020, the Company recognized a nominal payable for state income taxes due to AEP. The payable is recognized in Other current liabilities in the Consolidated Balance Sheets. As of December 31, 2021 and 2020, the Company’s Consolidated Balance Sheets reflected a receivable of $4$26 million and $5$44 million, respectively, for federal income taxes due from AEP. These amounts are recorded as Other Current Assets in the Consolidated Balance Sheets. As of December 31, 2018, the Company’s Consolidated Balance Sheets also reflected a receivable of $12 million from the IRS and certain state jurisdictions.
December 31, 20182021 | 9599
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Tax (Benefit) Expense (Benefit)
Income tax (benefit) expense (benefit) is comprised of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| Federal | $ | 84 | | | $ | (63) | | | $ | 96 | |
| State | 7 | | | (5) | | | 5 | |
| Total current | 91 | | | (68) | | | 101 | |
| Deferred: | | | | | |
| Federal | (76) | | | (1) | | | 3 | |
| State | (23) | | | (26) | | | 25 | |
| Total deferred | (99) | | | (27) | | | 28 | |
| Total income tax (benefit) expense | $ | (8) | | | $ | (95) | | | $ | 129 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Current: | | | | | |
| Federal | $ | 31 |
| | $ | (1 | ) | | $ | 67 |
|
| State | (7 | ) | | (22 | ) | | (7 | ) |
| Total current | 24 |
| | (23 | ) | | 60 |
|
| Deferred: | | | | | |
| Federal | 47 |
| | (181 | ) | | (61 | ) |
| State | 18 |
| | (13 | ) | | (19 | ) |
| Total deferred | 65 |
| | (194 | ) | | (80 | ) |
| Total income tax expense (benefit) | $ | 89 |
| | $ | (217 | ) | | $ | (20 | ) |
The following is a reconciliation of total income tax (benefit) expense (benefit) to income tax (benefit) expense (benefit) computed by applying the statutory federal income tax rate to pretax income (loss):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Tax computed at federal statutory rate | $ | 14 | | | $ | (87) | | | $ | 103 | |
| State income taxes, net of federal tax benefit | 3 | | | (18) | | | 29 | |
| Changes in enacted state tax rates, net of federal tax benefit | (10) | | | — | | | — | |
| State tax incentives, net of federal tax expense | (6) | | | (7) | | | (4) | |
| | | | | |
| | | | | |
| Noncontrolling interest | (10) | | | 13 | | | 4 | |
| Goodwill impairment | — | | | 3 | | | — | |
| Other, net | 1 | | | 1 | | | (3) | |
| | | | | |
| Total income tax (benefit) expense | $ | (8) | | | $ | (95) | | | $ | 129 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Tax computed at federal statutory rate | $ | 105 |
| | $ | — |
| | $ | (4 | ) |
| State income taxes, net of federal tax benefit | 14 |
| | (16 | ) | | (8 | ) |
| State tax incentives, net of federal tax expense | (4 | ) | | (7 | ) | | (9 | ) |
| Noncontrolling interest | (26 | ) | | 6 |
| | 6 |
|
| Other, net | — |
| | — |
| | (5 | ) |
| Adjustment to deferred tax assets and liabilities for enacted change in federal tax rate (a) | — |
| | (200 | ) | | — |
|
| Total income tax expense (benefit) | $ | 89 |
| | $ | (217 | ) | | $ | (20 | ) |
Deferred Tax Assets and Liabilities
The income tax effect of temporary differences that give rise to the Deferred income tax assets and Deferred income tax liabilities at December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| Deferred income tax assets: | | | |
| Personnel accruals | $ | 6 | | | $ | 2 | |
| State tax credit carryforward, net | 17 | | | 20 | |
| Net operating loss carryforward | 2 | | | 9 | |
| | | |
| | | |
| Total gross deferred income tax assets | 25 | | | 31 | |
| Deferred income tax liabilities: | | | |
| | | |
| Unrealized gain | — | | | (9) | |
| Investment in CVR Partners | (70) | | | (67) | |
| Investment in CVR Refining | (222) | | | (320) | |
| | | |
| Other | (1) | | | (3) | |
| Total gross deferred income tax liabilities | (293) | | | (399) | |
| Net deferred income tax liabilities | $ | (268) | | | $ | (368) | |
| | | | | |
(a) | The income tax benefit for the year ended December 31, 2017 was favorably impacted as a result of the Tax Cuts and Jobs Act legislation that was signed into law in December 2017, reducing the federal income tax rate from 35% to 21% beginning in 2018. As a result, the Company’s net deferred tax liabilities at December 31, 2017 were remeasured to reflect the lower tax rate that will be in effect for the years in which the deferred tax assets and liabilities will be realized. | |
December 31, 20182021 | 96100
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred Tax Assets and Liabilities
The income tax effect of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2018 and 2017 are as follows:
|
| | | | | | | |
| | December 31, |
| (in millions) | 2018 | | 2017 |
| Deferred income tax assets: | | | |
| State tax credit carryforward, net | $ | 11 |
| | $ | 11 |
|
| Net operating loss carryforward | — |
| | 7 |
|
| Total gross deferred income tax assets | 11 |
| | 18 |
|
| Deferred income tax liabilities: | | | |
| Investment in CVR Partners | (59 | ) | | (55 | ) |
| Investment in CVR Refining | (309 | ) | | (345 | ) |
| Other | (5 | ) | | (4 | ) |
| Total gross deferred income tax liabilities | (373 | ) | | (404 | ) |
| Net deferred income tax liabilities | $ | (362 | ) | | $ | (386 | ) |
In assessing the realizability of deferred tax assets including net operating loss and credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely than not that all of the deferred income tax assets will be realized, and thus,therefore, no valuation allowance was providedrecognized as of December 31, 20182021 and 2017.2020.
As of December 31, 2018,2021, CVR Energy has state tax credits of approximately $35$26 million, which are available to reduce future state income taxes. These credits, if not used, will begin expiring in 2033.2036.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Balance, beginning of year | $ | 17 | | | $ | 22 | | | $ | 23 | |
| Decrease based on prior year tax position | — | | | (2) | | | — | |
| Increase in current year tax positions | — | | | — | | | 2 | |
| Reductions related to expirations from statute of limitations | — | | | (3) | | | (3) | |
| Balance, end of year | $ | 17 | | | $ | 17 | | | $ | 22 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Balance beginning of year | $ | 29 |
| | $ | 44 |
| | $ | 49 |
|
| Reductions related to expirations of statute of limitations | (6 | ) | | (15 | ) | | (5 | ) |
| Balance end of year | $ | 23 |
| | $ | 29 |
| | $ | 44 |
|
Included in the balance of unrecognized tax benefits as of December 31, 2018, 20172021, 2020, and 20162019 are $18$13 million, $23$13 million, and $29$15 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Approximately $6 million, $15 million andAdditionally, the Company reasonably believes that $5 million of the unrecognized tax positions relatingrelated to state income tax credits were recognized in 2018, 2017 and 2016, respectively, as a result of a lapse of statute of limitations. Additionally, the Company believes that it is reasonably possible that approximately $3 million of its unrecognized tax positions relating to state tax credits maywill be recognized by the end of 20192022 as a result of a lapsethe expiration of the statute of limitations. Approximately $22$7 million and $26$8 million of unrecognized tax benefits were netted with deferredDeferred income tax asset carryforwards as of December 31, 20182021 and 2017,2020, respectively. The remaining unrecognized tax benefits are included in Other Long-term Liabilitieslong-term liabilities in the Consolidated Balance Sheets.
CVR Energy Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CVR Energy recognizesrecognized $1 million interest expense (income) and penalties on uncertain tax positions$2 million liability for interest as of December 31, 2021, nominal interest expense and income tax deficiencies (refunds) in income tax expense. CVR Energy recognized$1 million liability for interest as of December 31, 2020, and a nominal interest benefit of approximately $1 million during 2018 and has recognized a nominal liability for interest as of December 31, 2018. In 2017, CVR Energy recognized interest expense of approximately $7 million and had recognized a liability for interest of approximately $1 million as of December 31, 2017. In 2016, CVR Energy recognized interest expense of approximately $1 million and had recognized a liability for interest of approximately $8 million as of December 31, 2016.2019. No penalties were recognized during 20182021, 2020, or 2017.2019.
At December 31, 2018,2021, the Company’s tax filings are generally open to examination in the United States for the tax years ended December 31, 20152018 through December 31, 20172020 and in various individual states for the tax years ended December 31, 20132017 through December 31, 2017.2020.
(10)(11) Commitments and Contingencies
LeasesSupply Commitments
The minimum required payments for CVR’s operating lease agreements and unconditional purchase obligations are as follows:
| | | | | | | |
| (in millions) | | | Unconditional Purchase Obligations |
| Year Ended December 31, | | | |
| 2022 | | | $ | 136 | |
| 2023 | | | 85 | |
| 2024 | | | 82 | |
| 2025 | | | 82 | |
| 2026 | | | 77 | |
| Thereafter | | | 252 | |
| | | $ | 714 | |
|
| | | | | | | |
| Year Ending December 31, | Operating Leases | | Unconditional Purchase Obligations |
| (in millions) | |
| 2019 | $ | 24 |
| | $ | 129 |
|
| 2020 | 20 |
| | 89 |
|
| 2021 | 18 |
| | 78 |
|
| 2022 | 16 |
| | 76 |
|
| 2023 | 12 |
| | 75 |
|
| Thereafter | 26 |
| | 444 |
|
| | $ | 116 |
| | $ | 891 |
|
Leases - The Company leases equipment, including railcars and real properties, under long-term operating leases. For the years ended December 31, 2018, 2017 and 2016, rent expense totaled approximately $10 million, $8 million and $8 million, respectively.
Supply Commitments - The Company is a party to various supply agreements with both related and third parties which commit the Company to purchase minimum volumes of crude oil, hydrogen, oxygen, nitrogen, petroleumpet coke, (“pet coke”), and natural gas to run
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
its facilities’ operations. For the years ended December 31, 2018, 20172021, 2020, and 2016.2019, amounts purchased under these supply agreements totaled approximately $214$176 million, $209$153 million, and $151$167 million, respectively.
Crude Oil Supply Agreement
OnEffective on August 31, 2012,4, 2021, an indirect, wholly-owned subsidiary of CVR Refining and Vitol Inc. (“Vitol”) entered into anthe Second Amended and Restated Crude Oil Supply Agreement (as amended,(the “2021 Supply Agreement”) with Vitol Inc. (“Vitol”) which superseded, in its entirety, the August 31, 2012 Amended and Restated Crude Oil Supply Agreement (the “2012 Supply Agreement” and collectively with the 2021 Supply Agreement, the “Crude Oil Supply Agreement”). between the parties. The 2021 Supply Agreement is on substantially similar terms as the 2012 Supply Agreement, other than revisions to certain inventory turnover and insurance provisions. Under the Crude Oil Supply Agreement, Vitol supplies the Petroleum Segment with crude oil and intermediation logistics helping to reduce the amount of inventory held at a certain pointlocations and mitigate crude oil pricing risk. Volumes contracted under the Crude Oil Supply Agreement, as a percentage of the total crude oil purchases (in barrels), was approximately 42%, 55%33%, and 61%36% for the years ended December 31, 2018, 20172021, 2020, and 2016,2019, respectively. The Crude Oil Supply Agreement, which currently extends through December 31, 2022, automatically renews for successive one-year terms (each such term, a “Renewal Term”) unless either party provides the other with notice of nonrenewal at least 180 days prior to expiration of any Renewal Term.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingencies
CVRR Unit PurchaseThe U.S. Attorney’s office for the Southern District of New York contacted CVR Energy in September 2017 seeking production of information pertaining to CVR Refining’s, CVR Energy’s and Mr. Carl C. Icahn’s activities relating to the RFS and Mr. Icahn’s former role as an advisor to former President Trump. CVR Energy cooperated with the request and provided information in response to the subpoena. The U.S. Attorney’s office has not made any claims or allegations against CVR Energy or Mr. Icahn. CVR Energy believes it maintains a strong compliance program and, while no assurances can be made, CVR Energy does not believe this inquiry will have a material impact on its business, financial condition, results of operations or cash flows.
Call Option Lawsuits - As of February 20,In 2019, the Company, CVR Refining and its general partner, CVR Refining Holdings, IEP, and certain directors and affiliates have each been(collectively, the “Call Defendants”) were named in at least one of six9 now consolidated lawsuits filed in the Delaware Court of Chancery of the State of Delaware by purported former unitholders of CVR Refining, on behalf of themselves and an alleged class of similarly situated unitholders (therelating to the Company’s exercise of the call option (“Call Option”) under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner (collectively, the “Call Option Lawsuits”). The Call Option Lawsuits primarily allege breach of contract, tortious interference and breach of the implied covenant of good faith and fair dealing and seek monetary damages and attorneys’ fees, among other remedies, relating toremedies. In January 2020, the Company’s exercisecourt dismissed CVR Holdings and certain former directors of the call option under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner. Thepartner from the Call Option Lawsuits, though permitted some or all of the claims to proceed against each remaining defendant. Trial of the Call Option Lawsuits concluded in July 2021, and the parties are currently in the earliest stages of litigation.post-trial proceedings. The Company believes the Call Option Lawsuits are without merit and intendsis vigorously defending against them. The plaintiffs filed their Opening Post-Trial Brief on December 22, 2021, now quantifying alleged damages in excess of $300 million; the Call Defendants strongly dispute the plaintiffs’ claims and are preparing responsive briefings. Accordingly, the Company cannot determine at this time the outcome of the Call Option Lawsuits, including whether such outcome would have a material impact on the Company’s financial position, results of operations, or cash flows. However, while we firmly believe this matter is without merit, if it is concluded in a manner adverse to vigorously defend against them.the Company, it could have a material effect on the Company’s financial position, results of operations, or cash flows.
Business Interruption Recovery - In 2018, CVR Partners submittedThe Call Defendants are also parties to 2 lawsuits relating to insurance coverage for the Call Option Lawsuits, one filed on January 27, 2021, in the 434th Judicial District Court of Fort Bend County, Texas by the Call Defendants’ primary and excess insurers (the “Insurers”) seeking a business interruption claimdeclaratory judgment determining that they owe no indemnity coverage for losses under itsthe Call Option Lawsuits in relation to insurance policies relatedthat have coverage limits of $50 million, and another filed on January 30, 2022 in the Superior Court of the State of Delaware by the Call Defendants against the Insurers for anticipatory breach of contract and breach of the implied covenant of good faith and fair dealing (the “Delaware Coverage Case”). On November 23, 2021, the court in the Delaware Coverage Case granted partial summary judgment in favor of the Call Defendants relating to damagethe amount of the deductible. As both lawsuits are in their early stages, the Company cannot determine at this time the outcome of these lawsuits, including whether the outcome would have a material impact on the Company’s financial position, results of operations, or cash flows.
CVR Energy, Inc. and resulting reduced equipment production rates experienced duringSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Renewable Fuel Standards - The Company’s Petroleum Segment is subject to the second halfRFS, implemented by the Environmental Protection Agency (the “EPA”), which requires refiners to either blend renewable fuels into their transportation fuels or purchase renewable fuel credits, known as RINs, in lieu of 2017blending. The Petroleum Segment is not able to blend the substantial majority of its transportation fuels and early 2018. In December 2018,must either purchase RINs on the open market or obtain waiver credits for cellulosic biofuels, or other exemptions from the EPA, in connection with a signed Claim Settlement and Release Agreementorder to comply with the underwriters ofRFS.
For the insurance policy, CVR Partnersyears ended December 31, 2021, 2020, and 2019, the Company recognized a recoveryan expense of approximately $6 million. Approximately $5$435 million, was received prior$190 million, and $43 million, respectively, for the Petroleum Segment’s compliance with the RFS (based on the 2020 renewable volume obligation (“RVO”) and proposed preliminary 2021 RVO range, for the respective periods, excluding the impacts of any exemptions or waivers to year endwhich the Petroleum Segment may be entitled). The recognized amounts are included within Cost of materials and recorded as Other Income withinother in the Consolidated StatementStatements of Operations. TheOperations and represent costs to comply with the RFS obligation through purchasing of RINs not otherwise reduced by blending of ethanol or biodiesel. At each reporting period, to the extent RINs purchased and generated through blending are less than the RFS obligation (excluding the impact of exemptions or waivers to which the Petroleum Segment may be entitled), the remaining amount of approximately $1 million was recorded as Accounts Receivable asposition is marked-to-market using RIN market prices at period end. As of December 31, 20182021 and 2020, the Petroleum Segment’s RFS position was subsequently collectedapproximately $494 million and $214 million, respectively, which is recorded in January 2019.Other current liabilities in the Consolidated Balance Sheets.
Property Tax MatterRFS Disputes - In 2008, CRNF protestedOn June 25, 2021, the reclassification and reassessment by Montgomery County, KansasSupreme Court of the United States (the “County”“Supreme Court”) overturned a decision of CRNF’s nitrogen fertilizer plant following expiration of its ten-year property tax abatement that expired on December 31, 2007, which reclassification and reassessment resulted in an increase in CRNF’s annual property tax expense in excess of $10 million per year for the 2008 through 2012 tax years. Despite its protest, CRNF fully accrued and paid these property taxes. In February 2013, the County and CRNF agreed to a settlement for tax years 2009 through 2012 which resulted in decreased property taxes through 2017, leaving 2008 in dispute. In 2013, the Kansas10th Circuit Court of Appeals overturned(“10th Circuit”) vacating 3 small refinery exemptions (“SREs”) under the RFS, including one issued to the Wynnewood Refinery for 2017, to the extent such SREs were vacated based on failure to have continuously received an adverse ruling ofSRE in all applicable preceding years. Following the Kansas Board of Tax Appeals (“BOTA”) and instructed BOTA to classify each CRNF asset on an asset-by-asset basis. In March 2015, BOTA concluded its classification and determined a substantial majority of CRNF’s assets in dispute were personal property for the 2008 tax year. In September 2018, the Kansas Court of Appeals upheld BOTA’s property tax determinations in CRNF’s favor. In October 2018, the County petitioned the Kansas Supreme Court to reviewruling, the Court of Appeals determination. Subsequent briefs were filed by CRNF andEnvironmental Protection Agency (the “EPA”) notified WRC that it would reconsider WRC’s 2017 SRE on other grounds referenced in the County. The Kansas10th Circuit decision. On July 20, 2021, after remand from the Supreme Court, the 10th Circuit vacated its prior judgment, recalled its previous mandate denying WRC’s 2017 SRE, entered a new judgment and issued a new mandate transferring jurisdiction back to the EPA. On August 26, 2021, the EPA filed a Motion for Clarification asking the 10th Circuit whether the alternative holdings that supported the 10th Circuit’s prior judgment remain in effect and whether the new mandate returns the agency actions back to the EPA, which Motion for Clarification was denied. On September 15, 2021, WRC advised the EPA it considered its 2017 SRE intact and demanded that the EPA return the status of WRC’s 2017 SRE to “granted.” The EPA has not yet ruledresponded to WRC’s demand. Given the EPA’s failure to respond, we cannot currently estimate the outcome, impact or timing of resolution of this matter.
WRC and CRRM are also involved in or expected to be involved in several lawsuits relating to the RFS, including a lawsuit filed in 2019 in the D.C. Circuit by 4 ethanol and biofuels trade associations against the EPA claiming the EPA exceeded its authority in granting SREs for the 2018 compliance year, including the 2018 SRE granted to WRC’s Wynnewood Refinery (the “2018 SRE Lawsuit”), which 2018 SRE petitions were remanded by the court back to the EPA on December 8, 2021, with instructions to act on such petitions by April 7, 2022; a lawsuit by WRC against the EPA relating to damages sustained by WRC as a result of the EPA’s failure to timely issue WRC’s 2018 SRE (the “WRC 2018 SRE Lawsuit”); and a Petition for Review of the EPA’s February 2, 2022, final rule changing compliance deadlines under the RFS filed by WRC and CRRM with the D.C. Circuit on February 4, 2022 (the “Deadline Lawsuit”). The Company anticipates additional litigation to be filed in the future relating to the RFS, including one or more lawsuits by WRC against the EPA should it finalize the position set forth in its Proposed RFS Small Refinery Exemption Decision dated December 7, 2021 (the “Proposed Denial”), in which the EPA announced its intention to change its statutory interpretation of the CAA and deny 65 pending SRE petitions, including those submitted by WRC for 2019, 2020, and 2021, through which the Proposed Denial by the EPA has informed WRC it intends to also apply to deny all 2018 SREs previously approved by the EPA, including for WRC’s Wynnewood Refinery. These matters are in their early stages, and the Company cannot determine at this time the outcomes of these matters, including whether it will hearsuch outcomes would have a material impact on the County’s appeal.Company’s financial position, results of operations, or cash flows.
Environmental, Health, and Safety (“EHS”) Matters
Clean Air Act Matter - On August 21, 2018, CRRM received a letter from the United States Department of Justice (“DOJ”) on behalf of the EPA and KDHE alleging violations of the CAA and a 2012 Consent Decree (the “CD”) between Coffeyville Resources Refining & Marketing, LLC (“CRRM”), the United States (on behalf of the EPA) and the Kansas Department of Health and Environment (“KDHE”) alleging violations of the Clean Air Act (“CAA”) and a 2012 Consent Decree between CRRM, the United States (on behalf of EPA) and KDHE at CRRM’s Coffeyville refinery.refinery, primarily relating to flares. In September 2018, CRRM executedJune 2020, a tolling agreement withbetween the parties relating to such allegations expired, and the DOJ and KDHE extending timesent demand letters relating to the
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
allegations (the “Stipulated Claims”) and seeking stipulated penalties under the CD. In February 2021, the DOJ and KDHE sent CRRM a statement of position under the CD regarding its demand for negotiation regardingStipulated Claims. As CRRM disputes most claims asserted by the agencies’ allegations throughgovernment, in accordance with the CD, CRRM deposited funds into a commercial escrow account pending resolution of disputed claims. The escrowed funds are legally restricted for use and are included within Prepaid expenses and other current assets on the consolidated balance sheets. In April 2021, CRRM filed a petition for judicial review of the Stipulated Claims with the United States District Court for the District of Kansas (“D. Kan.”), in accordance with the dispute resolution provisions of the CD. On September 23, 2021, the court ordered briefing on CRRM’s petition, which was completed in December 2021. Separately, in December 2020, the DOJ and KDHE filed a supplement complaint in the D. Kan asserting 9 counts for alleged violations of the CAA, the Kansas State Implementation Plan and Kansas law seeking civil penalties, injunctive and related relief, which they sought leave to amend on February 10, 2022, to add an additional 8 counts under Part 63 of the National Emission Standards for Hazardous Air Pollutants from Petroleum Refineries Subparts CC and R (“NESHAP”), Kansas law, and CRRM’s permits relating to flares, heaters, and related matters (collectively, the “Statutory Claims”). In March 31, 2019. At2021, CRRM filed a partial motion to dismiss certain Statutory Claims, which is still pending with the D. Kan. Negotiations relating to the Stipulated Claims and the Statutory Claims are ongoing and the Company cannot determine at this time the Company cannot reasonably estimate the potential penalties, costs, fines or other expenditures that may result from this matteroutcome of these matters, including whether such outcome, or any subsequent enforcement or litigation relating thereto and, therefore, the Company cannot determine if the ultimate outcome of this matter willwould have a material impact on the Company’s financial position, results of operations, or cash flows.
Renewable Fuel StandardsEnvironmental Remediation - The Company’s Petroleum Segment is subject to the renewable fuel standards (“RFS”) of the Environmental Protection Agency (“EPA”) that require refiners to either blend “renewable fuels” in with their transportation fuels or purchase renewable fuel credits, known as renewable identification numbers (“RINs”), in lieu of blending. CVR Refining is not able to blend the substantial majority of its transportation fuels and has to purchase RINs on the open market, as well as obtain waiver credits for cellulosic biofuels from the EPA in order to comply with the RFS.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company recognized expense of approximately $60 million, $249 million and $206 million for the years ended December 31, 2018, 2017 and 2016, respectively, for the Petroleum Segment’s compliance with RFS. The expense recognized was included within Cost of Materials and Other in the Consolidated Statements of Operations. The Company’s costs to comply with RFS include the purchased cost of RINs, the impact of recognizing CVR Refining’s uncommitted biofuel blending obligation at fair value based on market prices at each reporting date and the valuation change of RINs purchases in excess of CVR Refining’s RFS obligation as of the reporting date. During the year ended December 31, 2018, the Company’s cost to comply with RFS was favorably impacted by a reduction in CVR Refining’s RFS obligation and reduced market pricing. As of December 31, 20182021 and 2017, CVR Refining’s biofuel blending obligation was approximately $4 million and $28 million, respectively, which is recorded in Other Current Liabilities in the Consolidated Balance Sheets.
Environmental Remediation - As of December 31, 2018 and 2017,2020, environmental accruals representing estimated costs for future remediation efforts at certain Petroleum Segment sites totaled approximately $8$12 million and $4$11 million, respectively. These amounts are reflected in Other Current Liabilitiescurrent liabilities or Other Long-Term Liabilitieslong-term liabilities depending on when the Company expects to expend such amounts.
Wynnewood Refinery Incident - On September 28, 2012, the Petroleum Segment’s Wynnewood refinery, owned and operated by Wynnewood Refining Company, LLC (“WRC”), an indirect wholly-owned subsidiary of CVR Refining, experienced an explosion in a boiler unit during startup after a short outage as part of the turnaround process. Two employees were fatally injured. Damage at the refinery was limited to the boiler. Additionally, there was no environmental impact. The refinery was in the final stages of shutdown for turnaround maintenance at the time of the incident. The Company completed an internal investigation of the incident and cooperated with the Occupational Safety and Health Administration (“OSHA”) in its investigation. OSHA also conducted a general inspection of the facility during the boiler incident investigation. In March 2013, OSHA completed its investigation, communicated its citations, and placed WRC in its Severe Violators Enforcement Program (“SVEP”). The Company is vigorously contesting the citations and OSHA’s placement of WRC in the SVEP. Any penalties associated with OSHA’s citations are not expected to have a material adverse effect on the consolidated financial statements.
(11)(12) Business Segments
The Company as twohas 2 operating segments: Petroleum and Nitrogen Fertilizer. These operating segments are also the Company’s reportable segments. As discussed in Note 1 (“Organization and Nature of Business”), the Petroleum Segment is comprised entirely of the consolidated operations of CVR Refining and its subsidiaries. Thesubsidiaries, while the Nitrogen Fertilizer Segment is comprised entirely of the consolidated operations of CVR Partners and its subsidiaries. OtherThe other amounts reflect intercompany eliminations, corporate cash and cash equivalents, income tax activities, and other corporate activities and related costs,that are not included in these segments but costs related to such activities are allocated to each segment based on amounts attributable to each. All intercompany transactions are eliminated and are reflect as other below.the operating segments. All operations of the segments are located within the United States.
December 31, 20182021 | 100104
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables summarize operating results, capital expenditures, and total asset information by segment:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Net sales: | | | | | |
| Petroleum | $ | 6,721 | | | $ | 3,586 | | | $ | 5,968 | |
| Nitrogen Fertilizer | 533 | | | 350 | | | 404 | |
| Other | (12) | | | (6) | | | (8) | |
| Total net sales | $ | 7,242 | | | $ | 3,930 | | | $ | 6,364 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Operating income (loss): | | | | | |
| Petroleum | $ | (27) | | | $ | (281) | | | $ | 574 | |
| Nitrogen Fertilizer | 134 | | | (35) | | | 27 | |
| Other | (20) | | | (17) | | | (21) | |
| Total operating income (loss) | 87 | | | (333) | | | 580 | |
| Interest expense, net | (117) | | | (130) | | | (102) | |
| | | | | |
| Investment income from marketable securities | 81 | | | 41 | | | — | |
| Other income, net | 15 | | | 7 | | | 13 | |
| Income (loss) before income tax expense | $ | 66 | | | $ | (415) | | | $ | 491 | |
| Depreciation and amortization: | | | | | |
| Petroleum | $ | 203 | | | $ | 202 | | | $ | 202 | |
| Nitrogen Fertilizer | 73 | | | 76 | | | 80 | |
Other (2) | 3 | | | — | | | 5 | |
| Total depreciation and amortization | $ | 279 | | | $ | 278 | | | $ | 287 | |
Capital expenditures: (1) | | | | | |
| Petroleum | $ | 50 | | | $ | 90 | | | $ | 89 | |
| Nitrogen fertilizer | 26 | | | 16 | | | 20 | |
Other (2) | 150 | | | 15 | | | 5 | |
| Total capital expenditures | $ | 226 | | | $ | 121 | | | $ | 114 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Net sales | | | | | |
| Petroleum | $ | 6,780 |
| | $ | 5,664 |
| | $ | 4,431 |
|
| Nitrogen Fertilizer | 351 |
| | 331 |
| | 356 |
|
| Other | (7 | ) | | (7 | ) | | (5 | ) |
| Total net sales | $ | 7,124 |
| | $ | 5,988 |
| | $ | 4,782 |
|
| Operating income (loss) | | | | | |
| Petroleum | $ | 599 |
| | $ | 134 |
| | $ | 58 |
|
| Nitrogen Fertilizer | 6 |
| | (10 | ) | | 26 |
|
| Other | (18 | ) | | (17 | ) | | (14 | ) |
| Total operating income (loss) | $ | 587 |
| | $ | 107 |
| | $ | 70 |
|
| Interest expense, net | (102 | ) | | (109 | ) | | (83 | ) |
| Other income, net | 15 |
| | 2 |
| | 2 |
|
| Earnings before income taxes | 500 |
| | — |
| | (11 | ) |
| Depreciation and amortization | | | | | |
| Petroleum | 134 |
| | 133 |
| | 129 |
|
| Nitrogen Fertilizer | 72 |
| | 74 |
| | 58 |
|
| Other | 7 |
| | 7 |
| | 6 |
|
| Total depreciation and amortization | 213 |
| | 214 |
| | 193 |
|
| Capital expenditures | | | | | |
| Petroleum | $ | 79 |
| | $ | 101 |
| | $ | 102 |
|
| Nitrogen fertilizer | 19 |
| | 14 |
| | 23 |
|
| Other | 4 |
| | 5 |
| | 8 |
|
| Total | $ | 102 |
| | $ | 120 |
| | $ | 133 |
|
The following table summarizes total assets by segment: | | | | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 | | |
| Petroleum | $ | 3,368 | | | $ | 2,991 | | | |
| Nitrogen Fertilizer | 1,127 | | | 1,033 | | | |
| Other, including intersegment eliminations | (589) | | | (46) | | | |
| Total assets | $ | 3,906 | | | $ | 3,978 | | | |
(1)Capital expenditures are shown exclusive of capitalized turnaround expenditures and business combinations.
(2)Other includes expenses related to and amounts incurred for the Wynnewood renewable diesel unit project.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
| Total assets | | | | | |
| Petroleum | $ | 2,360 |
| | $ | 2,270 |
| | $ | 2,332 |
|
| Nitrogen Fertilizer | 1,254 |
| | 1,234 |
| | 1,312 |
|
| Other | 293 |
| | 303 |
| | 406 |
|
| Total | $ | 3,907 |
| | $ | 3,807 |
| | $ | 4,050 |
|
December 31, 20182021 | 101105
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12)(13) Supplemental Cash Flow Information
Supplemental cash flow informationCash flows related to income taxes, interest, andleases, capital expenditures isand deferred financing costs included in accounts payable, and non-cash dividends were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Supplemental disclosures: | | | | | |
| Cash paid, net of refunds (received, net of payments) for income taxes | $ | 72 | | | $ | (2) | | | $ | 69 | |
| Cash paid for interest | 114 | | | 107 | | | 104 | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | 15 | | | 17 | | | 16 |
| Operating cash flows from finance leases | 5 | | | 6 | | | 6 |
| Financing cash flows from finance leases | 6 | | | 5 | | | 5 |
| Non-cash investing and financing activities: | | | | | |
Change in construction in progress included in accounts payable (1) | 2 | | | (3) | | | (7) | |
| Change in deferred financing costs included in accounts payable | 1 | | | — | | | — | |
| Non-cash dividends to CVR Energy stockholders | 251 | | | — | | | — | |
(1)Capital expenditures are shown exclusive of capitalized turnaround expenditures.
Cash, cash equivalents and restricted cash consisted of the following:
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2021 | | 2020 |
| Cash and cash equivalents | $ | 510 | | | $ | 667 | |
Restricted cash (2) | 7 | | | 7 | |
| Cash, cash equivalents and restricted cash | $ | 517 | | | $ | 674 | |
(2)The restricted cash balance is included within Prepaid expenses and other current assets on the Consolidated Balance Sheets.
|
| | | | | | | |
| | Year Ended December 31, |
| (in millions) | 2018 | | 2017 |
| Supplemental disclosures: | |
| Cash paid for income taxes, net of refunds | $ | 31 |
| | $ | 15 |
|
| Cash paid for interest | 103 |
| | 106 |
|
| Non-cash investing and financing activities: | | | |
| Construction in progress additions included in accounts payable | $ | 17 |
| | $ | 8 |
|
| Change in accounts payable related to construction in progress additions | 9 |
| | (5 | ) |
| Landlord incentives for leasehold improvements | — |
| | 1 |
|
(13)(14) Related Party Transactions
Activity associated with the Company’s related party arrangements for the years ended December 31, 2018, 2017,2021, 2020, and 20162019 is summarized below:
| | | | | | | | | | | | | | | | | |
| Expenses with related parties |
| Year Ended December 31, |
| (in millions) | 2021 | | 2020 | | 2019 |
| Cost of materials and other: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Enable Joint Venture Transportation Agreement | $ | 11 | | | $ | 11 | | | $ | 12 | |
| | | | | |
| Payments (received) made: | | | | | |
| | | | | |
Dividends (1) | 348 | | | 85 | | | 218 | |
| | | | | |
| AEP Tax Allocation Agreement | — | | | — | | | (3) | |
|
| | | | | | | | | | | |
| Expenses with related parties | Year ended December 31, |
| (in millions) | 2018 | | 2017 | | 2016 |
Cost of materials and other
| | | | | |
| Joint Venture Transportation Agreement: | | | | | |
| Enable JV | $ | 8 |
| | $ | 2 |
| | $ | — |
|
| | | | | | |
| Payments made | | | | | |
| Dividends (1) | 179 |
| | $ | 142 |
| | 142 |
|
| Tax Allocation Agreement with AEP | 12 |
| | 15 |
| | 45 |
|
|
| | | | | | | |
| Amounts due to/from related parties | | | |
| (in millions) | December 31, 2018 | | December 31, 2017 |
| Accounts Receivable (Payable) | | | |
| Tax Allocation Agreement with AEP | $ | 4 |
| | $ | 5 |
|
_____________________________
(1)See below for a summary of the dividends paid to IEP for the periodsyears ended December 31, 2018, 2017,2021, 2020, and 2016.2019.
Enable Joint Venture Agreement
CVR Refining is party to a transportation agreement as part of the Enable JV for an initial term of 20 years under which Enable provides transportation services for crude oil purchased within a defined geographic area. Additionally, CRCVR Refining
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
entered into a terminalling services agreement with Enable JV under which it receives access to Enable JV’s terminal in Lowrance,Lawrence, Oklahoma to unload and pump crude oil into Enable JV’s pipeline for an initial term of 20 years.
Midway Joint Venture
For the years ended December 31, 2018 | 102
Dividends to CVR Energy Inc.Stockholders
Dividends, if any, including the payment, amount and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Dividends
timing thereof, are determined in the discretion of CVR Energy’s board of directors (the “Board”). IEP, and its affiliates, through its ownership of the Company’s common shares,stock, is entitled to receive its share of dividends that are declared and paid by the Company based on the number of shares held at each record date. The following is a summaryNo dividends were declared related to the fourth quarter of 2021, and there were no quarterly dividends declared or paid during 2021 related to the quarterlyfirst, second, and special dividends paid to stockholders, including IEPthird quarters of 2021 and its affiliates duringfourth quarter of 2020. During the years ended December 31, 20182020 and 2017:2019, the Company paid dividends totaling $1.20 and $3.05 per common share, or $121 million and $306 million, respectively. Of these dividends, IEP received $85 million and $218 million, respectively, for the same periods.
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31, 2017 | | March 31, 2018 | | June 30, 2018 | | September 30, 2018 | | Total Dividends Paid in 2018 |
| Amount paid to IEP | $ | 36 |
| | $ | 36 |
| | $ | 53 |
| | $ | 54 |
| | $ | 179 |
|
| Amounts paid to public stockholders | 7 |
| | 8 |
| | 22 |
| | 22 |
| | 59 |
|
| Total amount paid | $ | 43 |
| | $ | 44 |
| | $ | 75 |
| | $ | 76 |
| | $ | 238 |
|
| | | | | | | | | | |
| Per common share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.75 |
| | $ | 0.75 |
| | $ | 2.50 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31, 2016 | | March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | Total Dividends
Paid in 2017 |
| Amount paid to IEP | $ | 35 |
| | $ | 36 |
| | $ | 35 |
| | $ | 36 |
| | $ | 142 |
|
| Amounts paid to public stockholders | 8 |
| | 8 |
| | 8 |
| | 8 |
| | 32 |
|
| Total amount paid | $ | 43 |
| | $ | 44 |
| | $ | 43 |
| | $ | 44 |
| | $ | 174 |
|
| | | | | | | | | | |
| Per common share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 2.00 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (in millions) | December 31, 2015 | | March 31, 2016 | | June 30, 2016 | | September 30, 2016 | | Total Dividends
Paid in 2016 |
| Amount paid to IEP | $ | 35 |
| | $ | 36 |
| | $ | 35 |
| | $ | 36 |
| | $ | 142 |
|
| Amounts paid to public stockholders | 8 |
| | 8 |
| | 8 |
| | 8 |
| | 32 |
|
| Total amount paid | $ | 43 |
| | $ | 44 |
| | $ | 43 |
| | $ | 44 |
| | $ | 174 |
|
| | | | | | | | | | |
| Per common share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 2.00 |
|
On February 20, 2019,May 26, 2021, the Company announced a special dividend of approximately $492 million, or equivalent to $4.89 per share of the Company’s boardcommon stock, to be paid in a combination of directorscash (the “Cash Distribution”) and the Stock Distribution. On June 10, 2021, the Company distributed an aggregate amount of approximately $241 million, or $2.40 per share of the Company’s common stock, pursuant to the Cash Distribution, and approximately 10,539,880 shares of Delek common stock, which represented approximately 14.3% of the outstanding shares of Delek common stock, pursuant to the Stock Distribution. IEP received approximately 7,464,652 shares of common stock of Delek and $171 million in cash. The Stock Distribution was recorded as a reduction to equity through a derecognition of our investment in Delek, and the Company recognized a gain of $112 million from the initial investment in Delek through the date of the Stock Distribution.
Distributions to CVR Partners’ Unitholders
Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the UAN GP Board. The following table presents distributions paid by CVR Partners to CVR Partners’ unitholders, including amounts received by the Company, as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Distributions Paid (in millions) |
| Related Period | | Date Paid | | Distribution Per
Common Unit | | Public Unitholders | | CVR Energy | | Total |
| 2021 - 2nd Quarter | | August 23, 2021 | | $ | 1.72 | | | $ | 11 | | | $ | 7 | | | $ | 18 | |
| 2021 - 3rd Quarter | | November 22, 2021 | | 2.93 | | | 20 | | | 11 | | | 31 | |
| Total dividends | | | | $ | 4.65 | | | $ | 31 | | | $ | 18 | | | $ | 49 | |
There were no distributions declared or paid by CVR Partners related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were declared or paid during 2020. During the year ended December 31, 2019, CVR Partners paid distributions totaling $4.00 per common unit on a cash dividend forsplit-adjusted basis, or $45 million. Of these distributions, CVR Energy received $16 million.
For the fourth quarter of 20182021, CVR Partners, upon approval by the UAN GP Board on February 21, 2022, declared a distribution of $5.24 per common unit, or $56 million, which is payable March 14, 2022 to the Company’s stockholders of $0.75 per share, or $75 million in the aggregate. The dividend will be paid on March 11, 2019 to stockholdersunitholders of record at the closeas of business on March 4, 2019. IEP7, 2022. Of this amount, CVR Energy will receive $53approximately $20 million, in respect of its ownership interest inwith the Company’s shares.remaining amount payable to public unitholders.
December 31, 20182021 | 103107
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Affiliate Pension Obligations
Prior to the exchange offer discussed in Note 1, Mr. Carl C. Icahn, through certain affiliates, owned approximately 82% of the Company’s capital stock. Applicable pension and tax laws make each member of a “controlled group” of entities, generally defined as entities in which there is at least an 80% common ownership interest, jointly and severally liable for certain pension plan obligations of any member of the controlled group. These pension obligations include ongoing contributions to fund the plan, as well as liability for any unfunded liabilities that may exist at the time the plan is terminated. As a result of the historical ownership interest in CVR Energy by Mr. Icahn’s affiliates (prior to the exchange offer), the Company was subject to the pension liabilities of all entities in which Mr. Icahn had a direct or indirect ownership interest of at least 80%. Two such entities, ACF Industries LLC (“ACF”) and Federal-Mogul, are the sponsors of several pension plans. As members of the controlled group, CVR Energy would be liable for any failure of ACF and Federal-Mogul to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of their respective pension plans. The unfunded plan balances for these sponsors was $435 million and $424 million as of June 30, 2018 and December 31, 2017, respectively. These results are based on the information provided by Mr. Icahn’s affiliates based on information from the plans’ actuaries. As of December 31, 2018, and following the exchange offer, Mr. Icahn’s affiliates own approximately 71% of the Company’s capital stock and, therefore the Company is no longer considered to be liable for the aforementioned pension obligations of the controlled group. On October 1, 2018, Federal-Mogul was sold by Mr. Icahn’s affiliates to a third party.
(14) Guarantor Financial Information
On January 29, 2019, in connection with CVRR Unit Purchase, CVR Energy, Inc. became a guarantor of CVR Refining’s 2022 Senior Notes pursuant to a supplemental indenture (the “CVR Energy Guarantee”). The CVR Energy Guarantee is full and unconditional and joint and several. Following the cessation of trading for CVRR’s common units and the execution of the CVR Energy Guarantee, the Company is providing condensed consolidating financial statements in lieu of standalone CVRR financial statements pursuant to Rule 3-10 of Regulation S-X.
The guarantor financial information provided below reflects condensed consolidating financial information of the Company. The following outlines the composition of each column in the condensed consolidating financial statements:
Parent - represents CVR Energy, Inc. which, as of January 29, 2019, guarantees the 2022 Senior Notes;
Subsidiary Issuer - represents Refining LLC and Coffeyville Finance, Inc. (“Coffeyville Finance”), which are the issuers of the 2022 Senior Notes. Coffeyville Finance has no assets or operations, thus the columns presents the financial position, results and cash flows of Refining LLC;
Guarantor Subsidiaries - represents the operating subsidiaries of Refining LLC, which also represent the operating subsidiaries of CVR Refining, and CRLLC, an indirect wholly-owned subsidiary of CVR Energy. CRLLC’s activities consist of general and administrative functions for the Company’s operating businesses; and
Non-Guarantor Subsidiaries - represents CVR Partners and other subsidiaries of CVR Energy that do not guarantee the 2022 Senior Notes.
For the purposes of this financial information, investments in consolidated subsidiaries are accounted for under the equity method of accounting. Intercompany transactions between entities within each column have been eliminated within the column. Eliminations for transactions with entities reflected in other columns are reflected in the “Intercompany Elimination” column.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | | | | | | | | | | | |
| ASSETS | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | |
| Cash and cash equivalents | $ | 3 |
| | $ | 340 |
| | $ | 252 |
| | $ | 73 |
| | $ | — |
| | $ | 668 |
|
| Accounts receivable | — |
| | — |
| | 107 |
| | 62 |
| | — |
| | 169 |
|
| Intercompany receivable | 6 |
| | — |
| | 4 |
| | — |
| | (10 | ) | | — |
|
| Inventories | — |
| | — |
| | 316 |
| | 64 |
| | — |
| | 380 |
|
| Prepaid expenses and other current assets | 31 |
| | 1 |
| | 47 |
| | 5 |
| | (8 | ) | | 76 |
|
| Total current assets | 40 |
| | 341 |
| | 726 |
| — |
| 204 |
| — |
| (18 | ) | — |
| 1,293 |
|
| Property, plant and equipment, net of accumulated depreciation | — |
| | — |
| | 1,425 |
| | 1,020 |
| | — |
| | 2,445 |
|
| Investment in and advances from subsidiaries | 1,192 |
| | 1,601 |
| | 173 |
| | 1,440 |
| | (4,406 | ) | | — |
|
| Other long-term assets | — |
| | 1 |
| | 123 |
| | 45 |
| | — |
| | 169 |
|
| Total assets | $ | 1,232 |
| | $ | 1,943 |
| | $ | 2,447 |
| 200,000 |
| $ | 2,709 |
| 200,000 |
| $ | (4,424 | ) | 200,000 |
| $ | 3,907 |
|
| LIABILITIES AND PARTNERS' CAPITAL | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | |
| Note payable and capital lease obligations | $ | — |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
| Accounts payable | 1 |
| | — |
| | 291 |
| | 29 |
| | (1 | ) | | 320 |
|
| Intercompany payables | — |
| | — |
| | — |
| | 10 |
| | (10 | ) | | — |
|
| Other current liabilities | 6 |
| | 7 |
| | 62 |
| | 105 |
| | (7 | ) | | 173 |
|
| Total current liabilities | 7 |
| | 7 |
| | 356 |
| — |
| 144 |
| — |
| (18 | ) | — |
| 496 |
|
| Long-term liabilities: | | | | | | | | | | | |
| Long-term debt and capital lease obligations, net of current portion | — |
| | 496 |
| | 42 |
| | 629 |
| | — |
| | 1,167 |
|
| Investment and advances from subsidiaries | — |
| | — |
| | 106 |
| | — |
| | (106 | ) | | — |
|
| Deferred income taxes | (24 | ) | | — |
| | — |
| | 386 |
| | — |
| | 362 |
|
| Other long-term liabilities | 3 |
| | — |
| | 7 |
| | 4 |
| | — |
| | 14 |
|
| Total long-term liabilities | (21 | ) | | 496 |
| | 155 |
| — |
| 1,019 |
| — |
| (106 | ) | — |
| 1,543 |
|
| Commitments and contingencies |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Equity: | | | | | | | | | | | |
| Total CVR stockholders’ equity | 1,246 |
| | 1,440 |
| | 1,936 |
| | 924 |
| | (4,300 | ) | | 1,246 |
|
| Noncontrolling interest | — |
| | — |
| | — |
| | 622 |
| | — |
| | 622 |
|
| Total equity | 1,246 |
| | 1,440 |
| | 1,936 |
| | 1,546 |
| | (4,300 | ) | | 1,868 |
|
| Total liabilities and equity | $ | 1,232 |
| | $ | 1,943 |
| | $ | 2,447 |
| — |
| $ | 2,709 |
| — |
| $ | (4,424 | ) | — |
| $ | 3,907 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | | | | | | | | | | | |
| ASSETS | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | |
| Cash and cash equivalents | $ | 4 |
| | $ | 163 |
| | $ | 261 |
| | $ | 54 |
| | $ | — |
| | $ | 482 |
|
| Accounts receivable | — |
| | — |
| | 169 |
| | 10 |
| | — |
| | 179 |
|
| Intercompany receivables | 9 |
| | — |
| | 8 |
| | — |
| | (17 | ) | | — |
|
| Inventories | — |
| | — |
| | 316 |
| | 53 |
| | — |
| | 369 |
|
| Prepaid expenses and other current assets | 13 |
| | 1 |
| | 23 |
| | 18 |
| | (7 | ) | | 48 |
|
| Total current assets | 26 |
| | 164 |
| | 777 |
| — |
| 135 |
| — |
| (24 | ) | — |
| 1,078 |
|
| Property, plant and equipment, net of accumulated depreciation | — |
| | — |
| | 1,513 |
| | 1,075 |
| | — |
| | 2,588 |
|
| Investment in and advances from subsidiaries | 897 |
| | 1,596 |
| | 189 |
| | 1,259 |
| | (3,941 | ) | | — |
|
| Other long-term assets | 1 |
| | 1 |
| | 91 |
| | 48 |
| | — |
| | 141 |
|
| Total assets | $ | 924 |
| | $ | 1,761 |
| | $ | 2,570 |
| — |
| $ | 2,517 |
| — |
| $ | (3,965 | ) | — |
| $ | 3,807 |
|
| LIABILITIES AND PARTNERS' CAPITAL | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | |
| Note payable and capital lease obligations | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
| Accounts payable | 1 |
| | — |
| | 310 |
| | 24 |
| | (1 | ) | | 334 |
|
| Intercompany payables | — |
| | — |
| | — |
| | 17 |
| | (17 | ) | | — |
|
| Other current liabilities | 12 |
| | 5 |
| | 151 |
| | 46 |
| | (6 | ) | | 208 |
|
| Total current liabilities | 13 |
| | 5 |
| | 463 |
| — |
| 87 |
| — |
| (24 | ) | — |
| 544 |
|
| Long-term liabilities: | | | | | | | | | | | |
| Long-term debt and capital lease obligations, net of current portion | — |
| | 496 |
| | 42 |
| | 626 |
| | — |
| | 1,164 |
|
| Investment and advances from subsidiaries | — |
| | — |
| | 230 |
| | — |
| | (230 | ) | | — |
|
| Deferred income taxes | (8 | ) | | — |
| | — |
| | 394 |
| | — |
| | 386 |
|
| Other long-term liabilities | — |
| | — |
| | 4 |
| | 5 |
| | — |
| | 9 |
|
| Total long-term liabilities | (8 | ) | | 496 |
| | 276 |
| — |
| 1,025 |
| — |
| (230 | ) | — |
| 1,559 |
|
| Commitments and contingencies |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Equity: | | | | | | | | | | | |
| Total CVR stockholders’ equity | 919 |
| | 1,260 |
| | 1,831 |
| | 620 |
| | (3,711 | ) | | 919 |
|
| Noncontrolling interest | — |
| | — |
| | — |
| | 785 |
| | — |
| | 785 |
|
| Total equity | 919 |
| | 1,260 |
| | 1,831 |
| — |
| 1,405 |
| — |
| (3,711 | ) | — |
| 1,704 |
|
| Total liabilities and equity | $ | 924 |
| | $ | 1,761 |
| | $ | 2,570 |
| — |
| $ | 2,517 |
| — |
| $ | (3,965 | ) | — |
| $ | 3,807 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Eliminations | | Consolidated |
| (in millions) | |
| Net sales | $ | — |
| | $ | — |
| | $ | 6,779 |
| | $ | 351 |
| | $ | (6 | ) | | $ | 7,124 |
|
| Operating costs and expenses: | | | | | | | | | | | |
| Cost of materials and other | — |
| | — |
| | 5,601 |
| | 88 |
| | (6 | ) | | 5,683 |
|
| Direct operating expenses | — |
| | — |
| | 364 |
| | 159 |
| | — |
| | 523 |
|
| Depreciation and amortization | — |
| | — |
| | 130 |
| | 72 |
| | — |
| | 202 |
|
| Cost of sales | — |
| | — |
| | 6,095 |
| | 319 |
| | (6 | ) | | 6,408 |
|
| Selling, general and administrative expenses | 17 |
| | 1 |
| | 60 |
| | 34 |
| | — |
| | 112 |
|
| Depreciation and amortization | — |
| | — |
| | 8 |
| | 3 |
| | — |
| | 11 |
|
| Loss on asset disposals | — |
| | — |
| | 5 |
| | 1 |
| | — |
| | 6 |
|
| Operating income (loss) | (17 | ) | | (1 | ) | | 611 |
| | (6 | ) | | — |
| | 587 |
|
| Other income (expense): | | | | | | | | | | | |
| Interest expense, net | — |
| | (32 | ) | | (7 | ) | | (63 | ) | | — |
| | (102 | ) |
| Other income, net | — |
| | — |
| | 9 |
| | 6 |
| | — |
| | 15 |
|
| Income (loss) from subsidiaries | 303 |
| | 611 |
| | (46 | ) | | 578 |
| | (1,446 | ) | | — |
|
| Income (loss) before income taxes | 286 |
| | 578 |
| | 567 |
| | 515 |
| | (1,446 | ) | | 500 |
|
| Income tax expense (benefit) | (3 | ) | | — |
| | — |
| | 92 |
| | — |
| | 89 |
|
| Net income (loss) | 289 |
| | 578 |
| | 567 |
| | 423 |
| | (1,446 | ) | | 411 |
|
| Less: Net income attributable to noncontrolling interest | — |
| | — |
| | — |
| | 122 |
| | — |
| | 122 |
|
| Net income (loss) attributable to CVR Energy stockholders | $ | 289 |
| | $ | 578 |
| | $ | 567 |
| | $ | 301 |
| | $ | (1,446 | ) | | $ | 289 |
|
| | | | | | | | | | | | |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | |
| Net sales | $ | — |
| | $ | — |
| | $ | 5,665 |
| | $ | 331 |
| | $ | (8 | ) | | $ | 5,988 |
|
| Operating costs and expenses: | | | | | | | | | | | |
| Cost of materials and other | — |
| | — |
| | 4,876 |
| | 85 |
| | (8 | ) | | 4,953 |
|
| Direct operating expenses | — |
| | — |
| | 441 |
| | 157 |
| | — |
| | 598 |
|
| Depreciation and amortization | — |
| | — |
| | 129 |
| | 74 |
| | — |
| | 203 |
|
| Cost of sales | — |
| | — |
| | 5,446 |
| | 316 |
| | (8 | ) | | 5,754 |
|
| Selling, general and administrative expenses | 15 |
| | 1 |
| | 14 |
| | 83 |
| | — |
| | 113 |
|
| Depreciation and amortization | — |
| | — |
| | 8 |
| | 3 |
| | — |
| | 11 |
|
| Loss on asset disposals | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
| Operating income (loss) | (15 | ) | | (1 | ) | | 194 |
| | (71 | ) | | — |
| | 107 |
|
| Other income (expense): | | | | | | | | | | | |
| Interest expense, net | — |
| | (34 | ) | | (11 | ) | | (64 | ) | | — |
| | (109 | ) |
| Other income, net | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | 2 |
|
| Income (loss) from subsidiaries | 246 |
| | 184 |
| | (88 | ) | | 148 |
| | (490 | ) | | — |
|
| Income (loss) before income taxes | 231 |
| | 149 |
| | 96 |
| | 14 |
| | (490 | ) | | — |
|
| Income tax benefit | (4 | ) | | — |
| | — |
| | (213 | ) | | — |
| | (217 | ) |
| Net income (loss) | 235 |
| | 149 |
| | 96 |
| | 227 |
| | (490 | ) | | 217 |
|
| Less: Net loss attributable to noncontrolling interest | — |
| | — |
| | — |
| | (18 | ) | | — |
| | (18 | ) |
| Net income (loss) attributable to CVR Energy stockholders | $ | 235 |
| | $ | 149 |
| | $ | 96 |
| | $ | 245 |
| | $ | (490 | ) | | $ | 235 |
|
| | | | | | | | | | | | |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | |
| Net sales | $ | — |
| | $ | — |
| | $ | 4,432 |
| | $ | 356 |
| | $ | (6 | ) | | $ | 4,782 |
|
| Operating costs and expenses: | | | | | | | | | | | |
| Cost of materials and other | — |
| | — |
| | 3,780 |
| | 93 |
| | (6 | ) | | 3,867 |
|
| Direct operating expenses | — |
| | — |
| | 392 |
| | 149 |
| | — |
| | 541 |
|
| Depreciation and amortization | — |
| | — |
| | 126 |
| | 58 |
| | — |
| | 184 |
|
| Cost of sales | — |
| | — |
| | 4,298 |
| | 300 |
| | (6 | ) | | 4,592 |
|
| Selling, general and administrative expenses | 12 |
| | 1 |
| | 15 |
| | 82 |
| | — |
| | 110 |
|
| Depreciation and amortization | — |
| | — |
| | 6 |
| | 3 |
| | — |
| | 9 |
|
| Loss on asset disposals | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Operating income (loss) | (12 | ) | | (1 | ) | | 113 |
| | (30 | ) | | — |
| | 70 |
|
| Other income (expense): | | | | | | | | | | | |
| Interest expense, net | — |
| | (32 | ) | | (2 | ) | | (49 | ) | | — |
| | (83 | ) |
| Other income, net | 5 |
| | — |
| | — |
| | (3 | ) | | — |
| | 2 |
|
| Income (loss) from subsidiaries | 26 |
| | 103 |
| | (64 | ) | | 78 |
| | (143 | ) | | — |
|
| Income (loss) before income taxes | 19 |
| | 70 |
| | 47 |
| | (4 | ) | | (143 | ) | | (11 | ) |
| Income tax benefit | (6 | ) | | — |
| | — |
| | (14 | ) | | — |
| | (20 | ) |
| Net income (loss) | 25 |
| | 70 |
| | 47 |
| | 10 |
| | (143 | ) | | 9 |
|
| Less: Net loss attributable to noncontrolling interest | — |
| | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| Net income (loss) attributable to CVR Energy stockholders | $ | 25 |
| | $ | 70 |
| | $ | 47 |
| | $ | 26 |
| | $ | (143 | ) | | $ | 25 |
|
| | | | | | | | | | | | |
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | | | | | |
| Net cash provided by (used in) operating activities | 38 |
| | (31 | ) | | 687 |
| | (77 | ) | | 3 |
| | 620 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | |
| Capital expenditures | (3 | ) | | — |
| | (79 | ) | | (20 | ) | | — |
| | (102 | ) |
Investment in affiliates, net of return of investment
| 202 |
| | 630 |
| | 679 |
| | 435 |
| | (1,946 | ) | | — |
|
| Other investing activities | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Net cash provided by (used in) investing activities | 199 |
| | 630 |
| | 600 |
| | 417 |
| | (1,946 | ) | | (100 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | |
| CVR Energy shareholder dividends | (238 | ) | | — |
| | — |
| | — |
| | — |
| | (238 | ) |
| CVR Refining unitholder distributions | — |
| | — |
| | (93 | ) | | — |
| | — |
| | (93 | ) |
| Distributions or intercompany advances to other CVR Energy subsidiaries | — |
| | (422 | ) | | (1,202 | ) | | (319 | ) | | 1,943 |
| | — |
|
| Other financing activities | — |
| | — |
| | (1 | ) | | (2 | ) | | — |
| | (3 | ) |
| Net cash provided by (used in) financing activities | (238 | ) | | (422 | ) | | (1,296 | ) | | (321 | ) | | 1,943 |
| | (334 | ) |
| Net increase (decrease) in cash and cash equivalents | (1 | ) | | 177 |
| | (9 | ) | | 19 |
| | — |
| | 186 |
|
| Cash and cash equivalents, beginning of period | 4 |
| | 163 |
| | 261 |
| | 54 |
| | — |
| | 482 |
|
| Cash and cash equivalents, end of period | $ | 3 |
| | $ | 340 |
| | $ | 252 |
| | $ | 73 |
| | $ | — |
| | $ | 668 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | | | | | |
| Net cash provided by (used in) operating activities | (30 | ) | | (32 | ) | | 273 |
| | (33 | ) | | (10 | ) | | 168 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | |
| Capital expenditures | (4 | ) | | — |
| | (101 | ) | | (15 | ) | | — |
| | (120 | ) |
Investment in affiliates, net of return of investment
| 207 |
| | 1,083 |
| | 112 |
| | 158 |
| | (1,636 | ) | | (76 | ) |
| Net cash provided by (used in) investing activities | 203 |
| | 1,083 |
| | 11 |
| | 143 |
| | (1,636 | ) | | (196 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | |
| CVR Energy dividends | (174 | ) | | — |
| | — |
| | — |
| | — |
| | (174 | ) |
| CVR Refining unitholder distributions | — |
| | — |
| | (47 | ) | | — |
| | — |
| | (47 | ) |
| CVR Partners unitholder distributions | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Distributions or intercompany advances to other CVR Energy subsidiaries | — |
| | (1,190 | ) | | (338 | ) | | (118 | ) | | 1,646 |
| | — |
|
| Other financing activities | — |
| | — |
| | (2 | ) | | (1 | ) | | — |
| | (3 | ) |
| Net cash provided by (used in) financing activities | (174 | ) | | (1,190 | ) | | (387 | ) | | (121 | ) | | 1,646 |
| | (226 | ) |
| Net decrease in cash and cash equivalents | (1 | ) | | (139 | ) | | (103 | ) | | (11 | ) | | — |
| | (254 | ) |
| Cash and cash equivalents, beginning of period | 5 |
| | 302 |
| | 364 |
| | 65 |
| | — |
| | 736 |
|
| Cash and cash equivalents, end of period | $ | 4 |
| | $ | 163 |
| | $ | 261 |
| | $ | 54 |
| | $ | — |
| | $ | 482 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Intercompany Elimination | | Consolidated |
| (in millions) | | | | | |
| Net cash provided by (used in) operating activities | (29 | ) | | (26 | ) | | 380 |
| | (45 | ) | | (13 | ) | | 267 |
|
| | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | |
| Capital expenditures | (10 | ) | | — |
| | (102 | ) | | (21 | ) | | — |
| | (133 | ) |
Acquisition of CVR Nitrogen, net of cash acquired
| — |
| | — |
| | — |
| | (64 | ) | | — |
| | (64 | ) |
Investment in affiliates, net of return of investment
| 214 |
| | 227 |
| | (157 | ) | | 281 |
| | (570 | ) | | (5 | ) |
| Other investing activities | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Net cash provided by (used in) investing activities | 204 |
| | 227 |
| | (258 | ) | | 196 |
| | (570 | ) | | (201 | ) |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | |
| Proceeds on issuance of 2023 Notes, net of original issue discount | — |
| | — |
| | — |
| | 629 |
| | — |
| | 629 |
|
| Principal and premium payments on 2021 Notes | — |
| | — |
| | — |
| | (322 | ) | | — |
| | (322 | ) |
| Payments of revolving debt | — |
| | — |
| | — |
| | (49 | ) | | — |
| | (49 | ) |
Principal payments on CRNF credit facility
| — |
| | — |
| | — |
| | (125 | ) | | — |
| | (125 | ) |
| CVR Energy shareholder dividends | (174 | ) | | — |
| | — |
| | — |
| | — |
| | (174 | ) |
| CVR Partners unitholder distributions | — |
| | — |
| | — |
| | (42 | ) | | — |
| | (42 | ) |
| Distributions or intercompany advances to other CVR Energy subsidiaries | — |
| | (69 | ) | | (280 | ) | | (234 | ) | | 583 |
| | — |
|
| Other financing activities | (11 | ) | | — |
| | (1 | ) | | — |
| | — |
| | (12 | ) |
| Net cash provided by (used in) financing activities | (185 | ) | | (69 | ) | | (281 | ) | | (143 | ) | | 583 |
| | (95 | ) |
| Net increase (decrease) in cash and cash equivalents | (10 | ) | | 132 |
| | (159 | ) | | 8 |
| | — |
| | (29 | ) |
| Cash and cash equivalents, beginning of period | 15 |
| | 170 |
| | 523 |
| | 57 |
| | — |
| | 765 |
|
| Cash and cash equivalents, end of period | $ | 5 |
| | $ | 302 |
| | $ | 364 |
| | $ | 65 |
| | $ | — |
| | $ | 736 |
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(15) Selected Quarterly Financial Information
Summarized quarterly financial data for December 31, 2018 and 2017 is as follows:
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Quarter |
| (in millions) | First | | Second | | Third | | Fourth |
| Net sales | $ | 1,536 |
| | $ | 1,915 |
| | $ | 1,935 |
| | $ | 1,737 |
|
| Cost of materials and other (a) | 1,179 |
| | 1,560 |
| | 1,556 |
| | 1,387 |
|
| Direct operating expenses (a) | 132 |
| | 141 |
| | 120 |
| | 130 |
|
| Operating income | 150 |
| | 121 |
| | 179 |
| | 138 |
|
| Net income | 104 |
| | 80 |
| | 121 |
| | 106 |
|
| Net income attributable to noncontrolling interest | 38 |
| | 30 |
| | 31 |
| | 24 |
|
| Net income attributable to CVR Energy stockholders | $ | 66 |
| | $ | 50 |
| | $ | 90 |
| | $ | 82 |
|
| | | | | | | | |
| Basic and diluted earnings per share | $ | 0.76 |
| | $ | 0.59 |
| | $ | 0.94 |
| | $ | 0.82 |
|
| Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.75 |
| | $ | 0.75 |
|
| | | | | | | | |
Weighted-average common shares outstanding - basic and diluted
| 86.8 |
| | 86.8 |
| | 95.8 |
| | 100.5 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Quarter |
| (in millions) | First | | Second | | Third | | Fourth |
| Net sales | $ | 1,507 |
| | $ | 1,434 |
| | $ | 1,454 |
| | $ | 1,593 |
|
| Cost of materials and other (a) | 1,209 |
| | 1,229 |
| | 1,149 |
| | 1,366 |
|
| Direct operating expenses (a) | 138 |
| | 124 |
| | 162 |
| | 175 |
|
| Operating income (loss) | 80 |
| | 1 |
| | 61 |
| | (36 | ) |
| Net income (loss) | 38 |
| | (19 | ) | | 25 |
| | 173 |
|
| Net income (loss) attributable to noncontrolling interest | 16 |
| | (8 | ) | | 3 |
| | (27 | ) |
| Net income (loss) attributable to CVR Energy stockholders | $ | 22 |
| | $ | (11 | ) | | $ | 22 |
| | $ | 200 |
|
| | | | | | | | |
| Basic and diluted earnings (loss) per share | $ | 0.26 |
| | $ | (0.12 | ) | | $ | 0.26 |
| | $ | 2.31 |
|
| Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
|
| | | | | | | | |
Weighted-average common shares outstanding - basic and diluted
| 86.8 |
| | 86.8 |
| | 86.8 |
| | 86.8 |
|
| |
(a) | Excludes depreciation and amortization expenses. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of December 31, 2018, theCompanyProcedures
The Company has evaluated, under the direction and with the participation of the Chief Executive Officer Chief Financial Officer and Chief AccountingFinancial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.15d-15(e). Based upon and as of the date of thatthis evaluation, the Company’s Chief Executive Officer Chief Financial Officer and Chief AccountingFinancial Officer concluded that disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports filed or submitted under the Exchange Act is accurately recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow accurate and timely decisions regarding required disclosure.of December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting.Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, we conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that internal control over financial reporting was effective as of December 31, 2018.2021. The Company’s independent registered public accounting firm, that audited the consolidated financial statements included herein under Item 8, has issued a report on the effectiveness of the Company’s internal control over financial reporting. This report can be found under Item 8.
Changes in Internal Control Over Financial Reporting.Reporting
There hashave been no changechanges in the Company’sour internal controlcontrols over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended December 31, 20182021 that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Item 9B. Other Information
None.During the fourth quarter of 2021, the Compensation Committee of our board of directors (the “Board”) approved an amendment to extend the term of the CVR Energy, Inc. Change in Control and Severance Plan (the “Severance Plan”), which was to expire by its terms on January 1, 2022. The Severance Plan, as amended, now provides that the plan will continue until the occurrence of specified change in control events or until it is terminated by the Compensation Committee of the Board. The Severance Plan provides for severance benefits to certain officers of the Company, including our principal financial officer and other named executive officers, in the event of a termination of his or her employment under certain circumstances. The description of the amendment to the Severance Plan herein is qualified in its entirety by the text of the amended Severance Plan, filed as Exhibit 10.26.1 to this Annual Report on Form 10-K.
On February 21, 2022, the Compensation Committee of our Board adopted the CVR Energy, Inc. 2022 Performance Based Bonus Plan and the CVR Refining, LP 2022 Performance Based Bonus Plan (collectively, the “2022 CVI Plans”), which apply to all eligible employees of our subsidiaries (excluding those of CVR Partners and its subsidiaries) and contain terms equivalent to the CVR Energy, Inc. 2021 Performance Based Bonus Plan and the CVR Refining, LP 2021 Performance Based Bonus Plan. The 2022 CVI Plans will be filed with our Quarterly Report on Form 10-Q for the period ending March 31, 2022.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
December 31, 20182021 | 114108
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Items 401, 405, 406, and 407(c)(3), (d)(4), and (d)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for our 20192022 annual meeting of stockholders.
Item 11. Executive Compensation
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for our 20192022 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The equity compensation plan information required by Items 201(d) and the information required by Item 403 of Regulation S-K in response to this item will be set forth in our definitive proxy statement for our 20192022 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for our 20192022 annual meeting of stockholders.
Item 14. Principal Accounting Fees and Services
The information required by Items 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy statement for our 20192022 annual meeting of stockholders.
December 31, 20182021 | 115109
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
- See “Index to Consolidated Financial Statements” Contained in Part II, Item 8 of this Report.Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
- All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “SEC”) are not required under the related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
| | | | | |
| Exhibit Number | Exhibit Description |
| |
Exhibit Number | Exhibit Title |
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| Indenture, dated June 10, 2016, by and among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 4.1 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). |
| |
| |
| |
| Indenture, dated as April 12, 2013,of January 27, 2020, among Rentech Nitrogen Partners, L.P.CVR Energy, Inc., Rentech Nitrogen Finance Corporation, the guarantors named therein and Wells Fargo Bank, National Association, as Trustee, and Wilmington Trust, National Association, as Collateral Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by Rentech Nitrogen Partners, L.P. on April 16, 2013 (Commission File No. 001-35334))January 27, 2020). |
| |
|
| |
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| 4.7** | |
| |
| 4.8** | Indenture, dated as of June 23, 2021, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed by Rentech Nitrogen Partners, L.P. on April 16, 2013 (Commission File No. 001-35334))June 23, 2021). |
| |
| First Supplemental Indenture, dated asForm of June 10, 2016, among CVR Nitrogen, LP, CVR Nitrogen Finance Corporation, the guarantors party thereto, Wells Fargo Bank, National Association, as Trustee, and Wilmington Trust, National Association, as Collateral Trustee6.125% Senior Secured Note due 2028 (incorporated by reference to Exhibit 10.3 of4.2 to the Company’s Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120))23, 2021). |
| |
| Amended and Restated ABL Credit Agreement, dated as of December 20, 2012, among Coffeyville Resources, LLC, CVR Refining, LP, CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC and certain of their affiliates, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as collateral agent and administrative agent (incorporated by reference to Exhibit 1.1 to the Company'sCompany’s Form 8-K filed on December 27, 2012). |
| |
| | | | | |
| 10.1.1** | Amendment No. 1 to Amended and Restated ABL Credit Agreement, dated November 14, 2017, by and among CVR Refining, LP, Coffeyville Finance Inc., CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC, CVR Logistics, LLC, a group of lenders and Wells Fargo, National Association, as administrative agent and collateral agent (incorporated by reference as Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on November 17, 2017). |
| |
| Amendment No. 2 to Amended and Restated ABL Credit Agreement, dated as of December 23, 2019, and effective December 31, 2019, by and among CVR Refining, LP, Coffeyville Finance Inc., CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC, CVR Logistics, LLC, a group of lenders and Wells Fargo Bank, National Association, as collateral agent and administrative agent (incorporated by reference to Exhibit 10.1.2 to the Company’s Form 10-K filed on February 20, 2020). |
| |
| 10.2** | Amended and Restated ABL Pledge and Security Agreement, dated as of December 20, 2012, among CVR Refining, LP, CVR Refining, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Pipeline, LLC, Coffeyville Resources Crude Transportation, LLC, Coffeyville Resources Terminal, LLC, Wynnewood Energy Company, LLC, Wynnewood Refining Company, LLC and certain of their affiliates, and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit 1.2 to the Company’s Form 8-K filed on December 27, 2012). |
| |
| Amended and Restated First Lien Pledge and Security Agreement, dated as of December 28, 2006, among Coffeyville Resources, LLC, CL JV Holdings, LLC, Coffeyville Pipeline, Inc., Coffeyville Refining and Marketing, Inc., Coffeyville Nitrogen Fertilizers, Inc., Coffeyville Crude Transportation, Inc., Coffeyville Terminal, Inc., Coffeyville Resources Pipeline, LLC, Coffeyville Resources Refining & Marketing, LLC, Coffeyville Resources Crude Transportation, LLC and Coffeyville Resources Terminal, LLC, as grantors, and Credit Suisse, as collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1/A, File No. 333-137588, filed on February 12, 2007). |
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| ABL Intercreditor Agreement, dated as of February 22, 2011, among Coffeyville Resources, LLC, Coffeyville Finance Inc., Deutsche Bank Trust Company Americas, as collateral agent for the ABL secured parties, Wells Fargo Bank, National Association, as collateral trustee for the secured parties in respect of the outstanding first lien obligations, and the outstanding second lien notes and certain subordinated liens, respectively, and the Guarantors (as defined therein) (incorporated by reference to Exhibit 1.3 to the Company’s Form 8-K filed on February 28, 2011). |
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| First Amended and Restated Collateral Trust and Intercreditor Agreement, dated as of April 6, 2010, among Coffeyville Resources, LLC, Coffeyville Finance Inc., the other grantors from time to time party thereto, Credit Suisse AG, Cayman Islands Branch, as administrative agent, Wells Fargo Bank, National Association, as indenture agent, J. Aron & Company, as hedging counterparty, each additional first lien representative and Wells Fargo Bank, National Association, as collateral trustee (incorporated by reference to Exhibit 10.33 to the Company’s Form 10-K filed on February 29, 2012). |
| |
| Omnibus Amendment Agreement and Consent under the Intercreditor Agreement, dated as of April 6, 2010, by and among Coffeyville Resources, LLC, Coffeyville Finance Inc., Coffeyville Pipeline, Inc., Coffeyville Refining & Marketing, Inc., Coffeyville Nitrogen Fertilizers, Inc., Coffeyville Crude Transportation, Inc., Coffeyville Terminal, Inc., CL JV Holdings, LLC, and certain subsidiaries of the foregoing as Guarantors, the Requisite Lenders, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent, Collateral Agent and Revolving Issuing Bank, J. Aron & Company, as a hedge counterparty and Wells Fargo Bank, National Association, as Collateral Trustee (incorporated by reference to Exhibit 1.4 to the Company’s Form 8-K filed on April 12, 2010). |
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|
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| LicenseMaster Service Agreement For Use of the Texaco Gasification Process, Texaco Hydrogen Generation Process, and Texaco Gasification Power Systems, dated as of May 30, 1997 by and between GE Energy (USA), LLC (as successor in interest to Texaco Development Corporation) and Coffeyville Resources Nitrogen Fertilizers, LLC (as successor in interest to Farmland Industries, Inc.), as amended (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1/A, File No. 333-137588, filed on April 18, 2007) (Certain portions of this exhibit have been omitted and separately filed with the SEC pursuant to a request for confidential treatment which has been granted by the SEC.). |
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| 10.4** | |
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| 10.5** | |
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| Second Amended and Restated Electric ServicesCrude Oil Supply Agreement, dated as of August 1, 2010,4, 2021, by and between Vitol Inc. and Coffeyville Resources Nitrogen Fertilizers,Refining & Marketing, LLC and the City of Coffeyville, Kansas (incorporated by reference toas Exhibit 10.1 to the Company’s Company’s Form 8-K10-Q filed on August 25, 2010)November 2, 2021). |
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| Amended and Restated Contribution, Conveyance and Assumption Agreement, dated as of April 7, 2011, among Coffeyville Resources, LLC, CVR GP, LLC, Coffeyville Acquisition III LLC, CVR Special GP, LLC and CVR Partners, LP (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K/A filed on May 23, 2011). |
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| 10.17.2*+ | |
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| 10.17.3*+ | |
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| 10.20**+ | |
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| 10.22**+ | |
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| 10.22.3**+ | |
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| 10.22.4*+ | |
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| + | |
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| Reorganization Agreement, dated as of January 16, 2013, by and among CVR Refining, LP, CVR Refining GP, LLC, CVR Refining Holdings, LLC and CVR Refining Holdings Sub, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on January 23, 2013 (Commission File No. 001-35781)). |
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| Registration Rights Agreement, dated as of January 23, 2013, by and among CVR Refining, LP, Icahn Enterprises Holdings L.P., CVR Refining Holdings, LLC and CVR Refining Holdings Sub, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by CVR Refining, LP on January 29, 2013 (Commission File No. 001-35781)). |
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| Registration Rights Agreement, dated as of August 9, 2015, by and among CVR Partners, Coffeyville Resources, LLC, Rentech Nitrogen Holdings, Inc., and DSHC, LLC (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by CVR Partners, LP on August 13, 2015 (Commission File No. 001-35120)). |
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| Collateral Trust Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). |
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| Parity Lien Security Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee(incorporated by reference to Exhibit 10.2 of the Form 8-K filed by CVR Partners, LP on June 16, 2016 (Commission File No. 001-35120)). |
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| ABL Credit Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, the lenders from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). |
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| Security Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). |
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| Intercreditor Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent for the secured parties, Wilmington Trust, National Association, as trustee and collateral trustee for the secured parties in respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto (incorporated by reference to Exhibit 10.3 of the Form 8-K filed by CVR Partners, LP on October 6, 2016 (Commission File No. 001-35120)). |
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| 10.30.1* | |
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| 10.31**+ | |
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| 10.32**+ | |
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| 10.33**+ | |
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| 10.34** | Amendment No. 1 to ABL Credit Agreement, dated as of September 29, 2020, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen GP, LLC and CVR Nitrogen Finance Corporation, the lenders party thereto and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by CVR Partners, LP on September 30, 2020). |
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| 10.35**+ | |
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| 10.36**+ | |
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| | | | | |
| 10.37**+ | |
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| 10.38**+ | |
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| 10.39** | |
| |
| 10.40** | The Joinder Agreement (Other Parity Lien Obligations), dated as of June 23, 2021, among Wilmington Trust, National Association, as an other parity obligations representative, UBS AG, Stamford Branch, as collateral agent under the Existing ABL Facility, Wilmington Trust, National Association, as applicable parity lien representative, Wilmington Trust, National Association, as parity lien collateral trustee and CVR Partners, LP (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 23, 2021). |
| |
| 10.41**+ | |
| |
| 10.42**+ | |
| |
| 10.43** | |
|
| |
| |
| Retention, Severance and ReleaseCredit Agreement, dated May 2, 2018, byas of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, the lenders from time to time party thereto and between CVR Energy, Inc.Wells Fargo Bank, National Association, a national banking association, as administrative agent and John R. Waltercollateral agent (incorporated by reference ofto Exhibit 10.1 to the Company’s Form 10-Q8-K filed by the Company on July 26, 2018)September 30, 2021). |
| |
| Guaranty and Security Agreement, dated as of September 30, 2021, among CVR Energy, Inc. Change in ControlPartners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, and Severance Plan, effective September 13, 2018Wells Fargo Bank, National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference ofto Exhibit 10.2 to the Company’s Form 10-Q8-K filed by the Company on October 25, 2018)September 30, 2021). |
| |
| Joinder Agreement (Other Parity Lien Obligations), dated as of September 30, 2021, among Wilmington Trust, National Association (“WTNA”), as an other applicable parity obligations representative, UBS AG, Stamford Branch (“UBS”), as collateral agent under the existing ABL Facility, WTNA, as applicable parity lien representative, WTNA, as parity lien collateral trustee, Wells Fargo, as collateral agent under the ABL Credit Facility and CVR Energy, Inc. 2018 Performance-Based Bonus Plan approvedPartners (on behalf of itself and its subsidiaries) to that certain intercreditor agreement dated as of September 13, 2018 (incorporated30, 2016 (as amended, supplemented or otherwise modified to date), among the Credit Parties, certain of their subsidiaries from time to time party thereto, UBS as trustee and collateral trustee for the secured parties in respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto(incorporated by reference ofto Exhibit 10.3 to the Company’s Form 10-Q8-K filed by the Company on October 25, 2018)September 30, 2021). |
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| + | |
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| + | |
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| | | | | |
| 10.49*+ | |
| |
| 21.1* |
|
| |
| |
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| |
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| |
| |
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| |
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| 101* | The following financial information for CVR Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018,2021, formatted in Inline XBRL (“Extensible Business Reporting Language”) includes: (1)(i) Consolidated Balance Sheets, (2)(ii) Consolidated Statements of Operations, (3)(iii) Consolidated Statements of Comprehensive Income, (4)(iv) Consolidated Statements of Changes in Equity, (5)(v) Consolidated Statements of Cash Flows, and (6)(vi) the Notes to Consolidated Financial Statements, tagged in detail. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
| | |
* | | Filed herewith. |
| | |
** | | Previously filed. |
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† | | Furnished herewith. |
| | |
+ | | Denotes management contract or compensatory plan or arrangement. |
| | |
* Filed herewith.
** Previously filed.
† Furnished herewith.
December 31, 2018 | 122
PLEASE NOTE:NOTE: Pursuant to the rules and regulations of the SEC, we may file or incorporate by reference agreements as exhibits to the reports that we file with or furnish to the SEC. The agreements are filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Company or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or operations on the date hereof.
Item 16. Form 10-K Summary
None.
December 31, 20182021 | 123115
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | |
| CVR Energy, Inc. |
| By: | /s/ DAVID L. LAMP |
| | Name: | David L. Lamp |
| | Title: | President and Chief Executive Officer |
Date: February 21, 201922, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report had been signed below by the following persons on behalf of the registrant and in the capacitycapacities and on the dates indicated.
| | | | | | | | |
| Signature | Title | Date |
| | |
| /s/ DAVID L. LAMP | President, Chief Executive Officer, and Director
(Principal Executive Officer) | February 22, 2022 |
| David L. Lamp | | |
| | |
Signature | Title | Date |
| | |
/s/ DAVID L. LAMPDANE J. NEUMANN | President, Chief Executive Officer and Director (Principal Executive Officer) | February 21, 2019 |
David L. Lamp | | |
| | |
/s/ TRACY D. JACKSON | Executive Vice President and Chief Financial Officer (Principal
(Principal Financial Officer) | February 21, 201922, 2022 |
Tracy D. JacksonDane J. Neumann | | |
| | |
/s/ MATTHEW W. BLEYJEFFREY D. CONAWAY | Vice President, Chief Accounting Officer and Corporate Controller (Principal
(Principal Accounting Officer) | February 21, 201922, 2022 |
Matthew W. BleyJeffrey D. Conaway | | |
| | |
/s/ SUNGHWAN CHO
KAPILJEET DARGAN | Chairman of the Board of DirectorsDirector | February 21, 201922, 2022 |
SungHwan ChoKapiljeet Dargan | | |
| | |
/s/ BOB G. ALEXANDER
JAFFERY A. FIRESTONE | Director | February 21, 201922, 2022 |
Bob G. AlexanderJaffery A. Firestone | | |
| | |
/s/ JONATHAN FRATES
| Director | February 21, 2019 |
Jonathan Frates | | |
| | |
/s/ STEPHEN MONGILLO | Director | February 21, 2019 |
Stephen Mongillo | | |
| | |
/s/ PATRICIA AGNELLO | Director | February 21, 2019 |
Patricia Agnello | | |
| | |
| /s/ HUNTER C. GARY | Director | February 21, 201922, 2022 |
| Hunter C. Gary | | |
| | |
| /s/ STEPHEN MONGILLO | Director | February 22, 2022 |
| Stephen Mongillo | | |
| | |
| /s/ JAMES M. STROCK | Director | February 21, 201922, 2022 |
| James M. Strock | | |
| | |
| /s/ DAVID WILLETTS | Director | February 22, 2022 |
| David Willetts | | |
December 31, 20182021 | 124116
